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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 2001.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
Commission file number 0-15436
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PLM EQUIPMENT GROWTH FUND
(Exact name of registrant as specified in its charter)
California 94-2998816
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
120 Montgomery Street
Suite 1350, San Francisco, CA 94104
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (415) 445-3201
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
Aggregate market value of the voting stock: N/A.
Indicate the number of units outstanding of each of the issuer's classes of
depositary units as of the latest practicable date:
Class Outstanding at March 26, 2002
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Limited partnership depositary units: 5,784,275
General Partnership Units: 1
An index of exhibits filed with this Form 10-K is located on page 19.
Total number of pages in this report: 61
PART I
ITEM 1. BUSINESS
(A) Background
In January 1986, PLM Financial Services, Inc. (FSI or the General Partner), a
wholly-owned subsidiary of PLM International, Inc. (PLM International or PLMI),
filed a Registration Statement on Form S-1 with the Securities and Exchange
Commission with respect to a proposed offering of 6,000,000 depositary units
(the units) in PLM Equipment Growth Fund, a California limited partnership (the
Partnership, the Registrant, or EGF). The Partnership's offering became
effective on May 20, 1986. FSI, as General Partner, owns a 1% interest in the
Partnership. The Partnership engages in the business of investing in diversified
equipment portfolio consisting primarily of used, long-lived, low-obsolescence
capital equipment that is easily transportable by and among prospective users.
The Partnership's primary objectives are:
(1) to maintain a diversified portfolio of long-lived, low-obsolescence
high residual-value equipment which were purchased with the net proceeds of the
initial partnership offering, supplemented by debt financing, and surplus
operating cash during the investment phase of the Partnership. All transactions
of over $1.0 million must be approved by the PLM International Credit Review
Committee (the Committee), which is made up of members of PLM International
Senior Management. In determining a lessee's creditworthiness, the Committee
will consider, among other factors, the lessee's financial statements, internal
and external credit ratings, and letters of credit;
(2) to generate sufficient net operating cash flows from lease operations
to meet liquidity requirements and to generate cash distributions to the limited
partners until such time as the General Partner commences the orderly
liquidation of the Partnership assets or unless the Partnership is terminated
earlier upon sale of all Partnership property or by certain other events;
(3) to selectively sell equipment when the General Partner believes that,
due to market conditions, market prices for equipment exceed inherent equipment
values or that expected future benefits from continued ownership of a particular
asset will have an adverse affect on the Partnership. As the Partnership is in
the liquidations phase, proceeds from these sales, together with excess net
operating cash flow from operations (net cash provided by operating activities
plus distributions from unconsolidated special-purpose entities (USPEs)), less
reasonable reserves will be used to pay distributions to the partners;
(4) to preserve and protect the value of the portfolio through quality
management, maintaining diversity, and constantly monitoring equipment markets.
The offering of the units of the Partnership closed on May 19, 1987. On November
20, 1990, the units of the Partnership began trading on the American Stock
Exchange (AMEX). Thereupon each unitholder received a depositary receipt
representing ownership of the number of units owned by such unitholder. The
General Partner contributed $100 for its 1% general partner interest in the
Partnership. The General Partner delisted the Partnership's depositary units
from the American Stock Exchange (AMEX) on April 8, 1996. The last day for
trading on the AMEX was March 22, 1996.
Since the third quarter of 1994, the Partnership agreement has prohibited the
General Partner from reinvesting cash flows and surplus funds in equipment.
On January 1, 1998, the Partnership entered its liquidation phase. All future
cash flows and surplus funds, if any, are to be used for distributions to the
limited partners, except to the extent used to maintain reasonable reserves. The
liquidation phase will end on December 31, 2006, unless the Partnership is
terminated earlier upon sale of all of the equipment or by certain other events.
As of December 31, 2001, there were 5,784,275 depositary units outstanding.
Table 1, below, lists the equipment and the cost of the equipment in the
Partnership's portfolio, and the Partnership's proportional share of equipment
owned by an unconsolidated special purpose entity as of December 31, 2001 (in
thousands of dollars):
TABLE 1
Units Type Manufacturer Cost
- -------------------------------------------------------------------------------------------------------
Owned equipment held for operating leases:
812 Pressurized tank railcars Various $ 20,451
20 Non pressurized tank railcars Various 565
45 Refrigerated marine containers Various 585
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Total owned equipment held for operating leases $ 21,601 (1)
=================
Equipment owned by an unconsolidated special-purpose entity (USPE):
0.50 Product tanker Kaldnes M/V $ 8,277 (1,2)
=================
(1) Includes equipment and investments purchased with capital contributions,
undistributed cash flow from operations, and Partnership borrowings.
Includes costs capitalized subsequent to the date of acquisition, and
equipment acquisition fees paid to PLM Transportation Equipment
Corporation, a wholly owned subsidiary of FSI. All equipment was used
equipment at the time of purchase.
(2) Jointly owned: EGF (50%) and one affiliated program.
Railcars are leased under operating leases with terms of one to six years. The
Partnership's marine containers are leased to operators of utilization-type
leasing pools that include equipment owned by unaffiliated parties. In such
instances, revenues received by the Partnership consist of a specified
percentage of revenues generated by leasing the pooled equipment to sublessees,
after deducting certain direct operating expenses of the pooled equipment. The
marine vessel owned by the USPE operates in the short term spot charter market.
The lessees of the equipment include but are not limited to: Amoco Canada,
Chevron USA Products Co., Cronos Containers, and Elbow River Resources.
(B) Management of Partnership Equipment
The Partnership has entered into an equipment management agreement with PLM
Investment Management, Inc. (IMI), a wholly owned subsidiary of FSI, for the
management of the Partnership's equipment. The Partnership's management
agreement with IMI is to co-terminate with the dissolution of the Partnership,
unless the limited partners vote to terminate the agreement prior to that date
or at the discretion of the General Partner. IMI has agreed to perform all
services necessary to manage the equipment on behalf of the Partnership and to
perform or contract for the performance of all obligations of the lessor under
the Partnership's leases. In consideration for its services and pursuant to the
Partnership agreement, IMI is entitled to a monthly management fee (see Notes 1
and 2 to the audited financial statements).
(C) Competition
(1) Operating Leases versus Full Payout Leases
The equipment owned or invested in by the Partnership is leased out on an
operating lease basis wherein the rents received during the initial
noncancelable term of the lease are insufficient to recover the Partnership's
purchase price of equipment. The short to mid-term nature of operating leases
commands a higher rental rate than the longer-term, full payout leases and
offers lessees relative flexibility in their equipment commitment. In addition,
the rental obligation under an operating lease need not be capitalized on the
lessee's balance sheet.
The Partnership encounters considerable competition from lessors that utilize
full payout leases on new equipment, i.e., leases that have terms equal to the
expected economic life of the equipment. While some lessees prefer the
flexibility offered by a shorter-term operating lease, other lessees prefer the
rate advantages possible with a full payout lease. Competitors may write full
payout leases at considerably lower rates and for longer terms than the
Partnership offers, or larger competitors with a lower cost of capital may offer
operating leases at lower rates, which may put the Partnership at a competitive
disadvantage.
(2) Manufacturers and Equipment Lessors
The Partnership competes with equipment manufacturers who offer operating leases
and full payout leases. Manufacturers may provide ancillary services that the
Partnership cannot offer, such as specialized maintenance services (including
possible substitution of equipment), training, warranty services, and trade-in
privileges.
The Partnership also competes with many equipment lessors, including ACF
Industries, Inc. (Shippers Car Line Division), General Electric Railcar Services
Corporation, and other investment programs that lease the same types of
equipment.
(D) Demand
The Partnership currently operates in three operating segments: marine vessel
leasing, marine container leasing, and railcar leasing. Each equipment leasing
segment engages in short-term to mid-term operating leases to a variety of
customers. The Partnership's equipment is used to transport materials and
commodities, rather than people.
The following section describes the international and national markets in which
the Partnership's capital equipment operates:
(1) Marine Vessel
The Partnership, through its USPE, has an investment in a 1975-built 50,000 dead
weight ton product tanker that operates in most international markets carrying a
variety of commodity-type cargoes. Demand for commodity-based shipping is
closely tied to worldwide economic growth patterns, which can affect demand by
causing changes in volume on trade routes. The General Partner of the USPE
operates the Partnership's product tanker in the spot chartering market, an
approach that provides the flexibility to rapidly adapt to changes in market
conditions, carrying mostly fuel oil and similar petroleum distillates.
The market for product tankers improved throughout most of 2001, with dramatic
improvements experienced in the first and second quarters; the market has
recently softened and the USPE's vessel, because of it's advanced age which
primarily effects the vessel's ability to operate in all markets, has seen
periods of idle time. The strength or weakness in the charter market for tankers
is generally tied to overall economic activity.
(2) Marine Containers
The Partnership's fleet of both standard dry and specialized containers is in
excess of 12 years of age, and is generally no longer suitable for use in
international commerce, either due to its specific physical condition, or the
lessees' preferences for newer equipment. As individual containers are returned
from their specific lessees, they are being marketed for sale on an "as is,
where is" basis. The market for such sales, although highly dependent upon the
specific location and type of container, has softened somewhat in the last year
primarily due to the worldwide recession. In addition to this overall softness
in residual values, the Partnership has continued to experience reduced residual
values on the sale of refrigerated containers, due primarily to technological
obsolescence associated with this equipment's refrigeration machinery.
(3) Railcars
(a) Pressurized Tank Cars
Pressurized tank cars are used to transport liquefied petroleum gas (natural
gas) and anhydrous ammonia (fertilizer). The US markets for natural gas are
industrial applications, residential use, electrical generation, commercial
applications, and transportation. Natural gas consumption is expected to grow
over the next few years as most new electricity generation capacity planned for
is expected to be natural gas fired. Within the fertilizer industry, demand is a
function of several factors, including the level of grain prices, status of
government farm subsidy programs, amount of farming acreage and mix of crops
planted, weather patterns, farming practices, and the value of the US dollar.
Population growth and dietary trends also play an indirect role.
On an industry-wide basis, North American carloadings of the commodity group
that includes petroleum and chemicals decreased over 5% in 2001 compared to
2000. Even with this decrease in industry-wide demand, the utilization of this
type of railcar within the Partnership continued to be in the 98% range through
2001.
(b) General Purpose (Nonpressurized) Tank Cars
These railcars are used to transport bulk liquid commodities and chemicals not
requiring pressurization, such as certain petroleum products, liquefied asphalt,
lubricating oils, molten sulfur, vegetable oils, and corn syrup. The overall
health of the market for these types of commodities is closely tied to both the
US and global economies, as reflected in movements in the Gross Domestic
Product, personal consumption expenditures, retail sales, and currency exchange
rates. The manufacturing, automobile, and housing sectors are the largest
consumers of chemicals. Within North America, 2001 carloadings of the commodity
group that includes chemicals and petroleum products fell over 5% from 2000
levels. Utilization of the Partnership's nonpressurized tank cars decreased from
90% at the beginning of 2001 to 85% at year-end.
(E) Government Regulations
The use, maintenance, and ownership of equipment are regulated by federal,
state, local, or foreign governmental authorities. Such regulations may impose
restrictions and financial burdens on the Partnership's ownership and operation
of equipment. Changes in government regulations, industry standards, or
deregulation may also affect the ownership, operation, and resale of the
equipment. Substantial portions of the Partnership's equipment portfolio are
either registered or operated internationally. Such equipment may be subject to
adverse political, government, or legal actions, including the risk of
expropriation or loss arising from hostilities. Certain of the Partnership's
equipment is subject to extensive safety and operating regulations, which may
require its removal from service or extensive modification of such equipment to
meet these regulations at considerable cost to the Partnership. Such regulations
include but are not limited to:
(1) The U.S. Oil Pollution Act of 1990, which established liability for
operators and owners of marine vessels that create environmental pollution.
This regulation has resulted in higher oil pollution liability insurance.
The lessee of the equipment typically reimburses the Partnership for these
additional costs;
(2) The Montreal Protocol on Substances that Deplete the Ozone Layer and
the U.S. Clean Air Act Amendments of 1990, which call for the control and
eventual replacement of substances that have been found to cause or
contribute significantly to harmful effects on the stratospheric ozone
layer and which are used extensively as refrigerants in refrigerated marine
cargo containers.
(3) The U.S. Department of Transportation's Hazardous Materials Regulations
regulates the classification and packaging requirements of hazardous
materials that apply particularly to Partnership's tank railcars. The
Federal Railroad Administration has mandated that effective July 1, 2000
all tank railcars must be re-qualified every ten years from the last test
date stenciled on each railcar to insure tank shell integrity. Tank shell
thickness, weld seams, and weld attachments must be inspected and repaired
if necessary to re-qualify the tank railcar for service. The average cost
of this inspection is $3,600 for jacketed tank railcars and $1,800 for
non-jacketed tank railcars, not including any necessary repairs. This
inspection is to be performed at the next scheduled tank test and every ten
years thereafter. The Partnership currently owns 812 jacketed tank railcars
and 20 non-jacketed tank cars that will need re-qualification. As of
December 31, 2001, 99 have been inspected and no significant defects have
been discovered.
As of December 31, 2001, the Partnership is in compliance with the above
government regulations. Typically, costs related to extensive modifications
required to meet government regulations are passed on to the lessee of that
equipment.
ITEM 2. PROPERTIES
The Partnership neither owns nor leases any properties other than the equipment
it has purchased and its interest in an entity that owns equipment for leasing
purposes. As of December 31, 2001, the Partnership owned a portfolio of
transportation and related equipment and an investment in equipment owned by an
unconsolidated special-purpose entity (USPE), as described in Item 1, Table 1.
The Partnership acquired equipment with the proceeds of the Partnership offering
of $100.0 million, proceeds from debt financing of $23.0 million, and by
reinvesting a portion of its operating cash flow in additional equipment.
The Partnership maintains its principal office at 120 Montgomery Street, Suite
1350, San Francisco, California 94104. All office facilities are provided by FSI
without reimbursement by the Partnership.
ITEM 3. LEGAL PROCEEDINGS
The Partnership, together with affiliates, has initiated litigation in various
official forums in India and the United States against a defaulting Indian
airline lessee to repossess Partnership property and to recover damages for
failure to pay rent and failure to maintain such property in accordance with the
relevant lease contract. The Partnership has repossessed all of its property
previously leased to such airline and the airline has ceased operations. In
response to the Partnership's collection efforts, the airline lessee filed
counterclaims against the Partnership in excess of the Partnership's claims
against the airline. The General Partner believes that the airline's
counterclaims are completely without merit, and the General Partner will
vigorously defend against such counterclaims.
During 2001, the General Partner has decided to minimize its collection efforts
from the India lessee in order to save the Partnership from incurring additional
expenses associated with trying to collect from a lessee that has no apparent
ability to pay.
The Partnership is involved as plaintiff or defendant in various legal actions
incident to its business. Management does not believe that any of these actions
will be material to the financial condition or results of operations of the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Partnership's limited partners during
the fourth quarter of its fiscal year ended December 31, 2001.
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED DEPOSITARY UNIT MATTERS
Pursuant to the items of the partnership agreement, the General Partner is
entitled to a 1% interest in the profits, losses and distributions of the
Partnership. The General Partner is the sole holder of such interest. Special
allocations of income are made to the General Partner equal to the deficit
balance, if any, in the capital account of the General Partner. The General
Partner's annual allocation of net income will generally be equal to the General
Partner's cash distributions paid during the current year. The remaining
interests in the profits, losses and distributions of the Partnership are owned,
as of December 31, 2001, by the 4,954 unit holders in the Partnership
There are several secondary markets that will facilitate sales and purchases of
depositary units. Secondary markets are characterized as having few buyers for
depositary units and, therefore, are generally viewed as inefficient vehicles
for the sale of depositary units. Presently, there is no public market for the
units and none is likely to develop.
The Partnership is listed on the OTC Bulletin Board under the symbol GFXPZ.
To prevent the units from being considered publicly traded and thereby to avoid
taxation of the Partnership as an association treated as a corporation under the
Internal Revenue Code, the limited partnership units will not be transferable
without the consent of the General Partner, which may be withheld in its
absolute discretion. The General Partner intends to monitor transfers of limited
partnership units in an effort to ensure that they do not exceed the percentage
or number permitted by certain safe harbors promulgated by the Internal Revenue
Service. A transfer may be prohibited if the intended transferee is not a United
States citizen or if the transfer would cause any portion of the units of a
"Qualified Plan" as defined by the Employee Retirement Income Security Act of
1974 and Individual Retirement Accounts to exceed the allowable limit.
(This space intentionally left blank)
ITEM 6. SELECTED FINANCIAL DATA
Table 2, below, lists selected financial data for the Partnership:
TABLE 2
For the years ended December 31,
(In thousands of dollars, except per weighted-average depositary unit amounts)
2001 2000 1999 1998 1997
----------------------------------------------------------------------------------
Operating results:
Total revenues $ 5,545 $ 6,669 $ 6,816 $ 8,366 $ 12,462
Net gain on disposition
of equipment 98 486 156 733 3,265
Equity in net income (loss) of
unconsolidated special-
purpose entities (186) 1,606 2,047 (895) (483)
Net income 1,389 3,804 4,321 1,807 5,685
At year-end:
Total assets $ 4,716 $ 5,497 $ 7,217 $ 13,020 $ 20,006
Total liabilities 213 257 463 693 1,308
Cash distribution $ 2,126 $ 3,858 $ 3,850 $ 4,695 $ 6,405
Special distribution $ -- $ 1,460 $ 6,044 $ 3,483 $ --
Total cash distribution $ 2,126 $ 5,318 $ 9,894 $ 8,178 $ 6,405
Cash and special distribution
representing a return of capital
to the limited partners $ 737 $ 1,514 $ 5,573 $ 6,560 $ 754
Per weighted-average depositary unit:
Net income $ 0.24 1 $ 0.65 1 $ 0.73 1 $ 0.31 1 $ 0.97 (1)
Cash distribution $ 0.36 $ 0.66 $ 0.66 $ 0.81 $ 1.10
Special distribution $ -- $ 0.25 $ 1.04 $ 0.60 $ --
Total cash distribution $ 0.36 $ 0.91 $ 1.70 $ 1.41 $ 1.10
Cash and special distribution
representing a return of capital
to the limited partners $ 0.13 $ 0.26 $ 0.96 $ 1.13 $ 0.13
- ----------------------------------
1 After reduction of income of $7,000 ($0.00 per weighted-average depositary
unit) in 2001, $14,000 ($0.00 per weighted-average depositary unit) in
2000, $0.1 million ($0.01 per weighted-average depositary unit) in 1999,
$0.3 million ($0.04 per weighted-average depositary unit) in 1998, and
$41,000 ($0.01 per weighted-average depositary unit) in 1997 representing
allocations to the General Partner (see Note 1 to the financial
statements).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(A) Introduction
Management's discussion and analysis of financial condition and results of
operations relates to the financial statements of PLM Equipment Growth Fund (the
Partnership). The following discussion and analysis of operations focuses on the
performance of the Partnership's equipment in the various segments in which it
operates and its effect on the Partnership's overall financial condition.
(B) Results of Operations -- Factors Affecting Performance
(1) Re-leasing Activity and Repricing Exposure to Current Economic Conditions
The exposure of the Partnership's equipment portfolio to repricing risk occurs
whenever the leases for the equipment expire or are otherwise terminated and the
equipment must be remarketed. Major factors influencing the current market rate
for the Partnership's equipment include supply and demand for similar or
comparable types of transport capacity, desirability of the equipment in the
leasing market, market conditions for the particular industry segment in which
the equipment is to be leased, overall economic conditions, and various
regulations concerning the use of the equipment. Equipment that is idle or out
of service between the expiration of one lease and the assumption of a
subsequent lease can result in a reduction of contribution to the Partnership.
The Partnership experienced re-leasing activity or repricing exposure in 2001
across its railcar, marine container, and marine vessel portfolios.
(a) Railcars: The relatively short duration of most leases exposes the
railcars to considerable re-leasing activity. As of December 31, 2001, the
Partnership's had 30 railcars off-lease. Additional railcars will expire in
2002. The Partnership's railcar lease revenue declined approximately $0.4
million from 2000 to 2001 due to the sale and disposition of railcars
during 2000 and 2001.
(b) Marine containers: The Partnership's remaining marine container
portfolio is operated in utilization-based leasing pools and, as such, is
exposed to repricing activity. The Partnership's marine container lease
revenue declined approximately $45,000 from 2000 to 2001 primarily due to
the disposition of marine containers in 2000 and 2001.
(c) Marine vessel: The marine vessel in which the Partnership owns an
interest operated in the short-term leasing market in 2001 exposing it to
repricing activity.
(2) Equipment Liquidations
Liquidation of Partnership equipment and the Partnership's investment in an USPE
represents a reduction in the size of the equipment portfolio and may result in
reduction of contributions to the Partnership. During the year ended December
31, 2001, the Partnership sold or disposed of railcars and marine containers
with an aggregate net book value of $31,000 for proceeds net of commissions of
$0.1 million.
(3) Equipment Valuation
In accordance with Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of," the General Partner
reviews the carrying value of the Partnership's equipment portfolio at least
quarterly and whenever circumstances indicate that the carrying value of an
asset may not be recoverable due to expected future market conditions. If the
projected undiscounted cash flows and the fair market value of the equipment are
less than the carrying value of the equipment, a loss on revaluation is
recorded. No reductions to wholly or partially owned USPE equipment were
required for the years ended December 31, 2001, 2000 or 1999.
In October 2001, FASB issued SFAS N0. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which replaces SFAS N0. 121. SFAS No. 144
provides updated guidance concerning the recognition and measurement of an
impairment loss for certain types of long-lived assets, expands the scope of a
discontinued operation to include a component of an entity and eliminates the
current exemption to consolidation when control over a subsidiary is likely to
be temporary. SFAS No. 144 is effective for fiscal years beginning after
December 15, 2001.
The Partnership will apply the new rules on accounting for the impairment or
disposal of long-lived assets beginning in the first quarter of 2002, and they
are not anticipated to have an impact on the Partnership's earnings or financial
position.
(C) Financial Condition -- Capital Resources and Liquidity
The General Partner purchased the Partnership's initial equipment portfolio with
capital raised from its initial equity offering and permanent debt financing. No
further capital contributions from the original partners are permitted under the
terms of the limited partnership agreement. As of December 31, 2001, the
Partnership had no outstanding debt. The Partnership relies on operating cash
flows to meet its operating obligations.
For the year ended December 31, 2001, the Partnership generated $2.8 million in
operating cash to meet its operating obligations and make distributions of $2.1
million to the partners.
The Partnership's investment in an USPE declined $0.4 million in 2001 due to
distributions received from the USPE of $0.2 million and from the Partnership's
share of loss from the entity of $0.2 million.
The General Partner has not planned any expenditures, nor is it aware of any
contingencies that would cause it to require any additional capital to that
mentioned above.
The Partnership is in its active liquidation phase. As a result, the size of the
Partnership's remaining equipment portfolio and, in turn, the amount of net cash
flows from operations will continue to become progressively smaller as assets
are sold. Significant asset sales may result in special distributions to the
partners.
The amounts reflected for assets and liabilities of the Partnership have not
been adjusted to reflect liquidation values. The equipment portfolio that is
actively being marketed for sale by the General Partner continues to be carried
at the lower of depreciated cost or fair value less cost of disposal. Although
the General Partner estimates that there will be distributions to the
Partnership after final disposal of assets and settlement of liabilities, the
amounts cannot be accurately determined prior to actual disposal of the
equipment.
(D) Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the General Partner
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On a regular basis, the General Partner reviews
these estimates including those related to asset lives and depreciation methods,
impairment of long-lived assets including intangibles, allowance for doubtful
accounts, and contingencies and litigation. These estimates are based on the
General Partner's historical experience and on various other assumptions
believed to be reasonable under the circumstances. Actual results may differ
from these estimates under different assumptions or conditions. The General
Partner believes, however, that the estimates, including those for the
above-listed items, are reasonable and that actual results will not vary
significantly from the estimated amounts.
The General Partner believes the following critical accounting policies affect
the more significant judgments and estimates used in the preparation of the
Partnership's financial statements:
Asset lives and depreciation methods: The Partnership's primary business
involves the purchase and subsequent lease of long-lived transportation and
related equipment. The General Partner has chosen asset lives that it believes
correspond to the economic life of the related asset. The General Partner has
chosen a deprecation method that it believes matches the benefit to the
Partnership from the asset with the associated costs. These judgments have been
made based on the General Partner's expertise in each equipment segment that the
Partnership operates. If the asset life and depreciation method chosen does not
reduce the book value of the asset to at least the potential future cash flows
from the asset to the Partnership, the Partnership would be required to record a
loss on revaluation. Likewise, if the net book value of the asset was reduced by
an amount greater than the economic value has deteriorated, the Partnership may
record a gain on sale upon final disposition of the asset.
Impairment of long-lived assets: On a regular basis, the General Partner reviews
the carrying value of its equipment, investments in unconsolidated special
purpose entities and intangible assets to determine if the carrying value of the
asset may not be recoverable due to current economic conditions. This requires
the General Partner to make estimates related to future cash flows from each
asset as well as the determination if the deterioration is temporary or
permanent. If these estimates or the related assumptions change in the future,
the Partnership may be required to record additional impairment charges.
Allowance for doubtful accounts: The Partnership maintains allowances for
doubtful accounts for estimated losses resulting from the inability of the
lessees to make the lease payments. These estimates are primarily based on the
amount of time that has lapsed since the related payments were due as well as
specific knowledge related to the ability of the lessees to make the required
payments. If the financial condition of the Partnership's lessees were to
deteriorate, additional allowances could be required that would reduce income.
Conversely, if the financial condition of the lessees were to improve or if
legal remedies to collect past due amounts were successful, the allowance for
doubtful accounts may need to be reduced and income would be increased.
Contingencies and litigation: The Partnership is subject to legal proceedings
involving ordinary and routine claims related to its business. The ultimate
legal and financial liability with respect to such matters cannot be estimated
with certainty and requires the use of estimates in recording liabilities for
potential litigation settlements. Estimates for losses from litigation are made
after consultation with outside counsel. If estimates of potential losses
increase or the related facts and circumstances change in the future, the
Partnership may be required to record additional litigation expense.
(E) Results of Operations -- Year-to-Year Detailed Comparison
(1) Comparison of the Partnership's Operating Results for the Years Ended
December 31, 2001 and 2000.
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance and
asset-specific insurance expenses) on owned equipment decreased during 2001
compared to 2000. Gains or losses from the sale of equipment, interest and other
income, and certain expenses such as depreciation and general and administrative
expenses relating to the operating segments (see Note 5 to the audited financial
statements), are not included in the owned equipment operation discussion
because they are indirect in nature and not a result of operations but the
result of owning a portfolio of equipment. The following table presents lease
revenues less direct expenses by equipment type (in thousands of dollars):
For the Years Ended
Ended December 31,
2001 2000
---------------------------
Railcars $ 3,686 $ 3,949
Marine containers 54 98
Trailers -- 192
Railcars: Railcar lease revenues and direct expenses were $5.3 million and $1.6
million, respectively, for 2001, compared to $5.6 million and $1.7 million,
respectively, during 2000. Lease revenues declined $0.2 million due to an
increase in the number of railcars off-lease compared to 2000 and declined an
additional $0.1 million due to lower release rates on certain of the fleet's
tank railcars in 2001 compared to 2000. Direct expenses decreased $0.1 million
due to fewer repairs to the railcar fleet compared to 2000.
Marine containers: Marine container lease revenues and direct expenses were $0.1
million and $-0-, respectively, for the year ended December 31, 2001, compared
to $0.1 million and $1,000, respectively, during the same period of 2000. The
number of marine containers owned by the Partnership has been declining due to
dispositions. The result of this declining fleet has been a decrease in marine
container contribution.
Trailers: All the Partnership's trailers were sold in the third quarter of 2000.
Trailer lease revenues and direct expenses were $0.3 million and $0.1 million,
respectively, for the year ended December 31, 2000.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $2.3 million for 2001 decreased from $2.6 million for
2000. Significant variances are explained as follows:
(i) A $0.2 million decrease in depreciation expense from 2000 levels
reflecting the disposition of assets during 2001 and during 2000.
(ii)A $0.1 million decrease in management fee expense to affiliates was due
to reduced cash flows from operations in 2001 compared to the same period in
2000.
(c) Net Gain on Disposition of Owned Equipment
Net gain on disposition of equipment for the year ended December 31, 2001
totaled $0.1 million and resulted from the sale of railcars and marine
containers with an aggregate net book value of $31,000, for proceeds of $0.1
million. For the year ended December 31, 2000, the net gain on dispositions
totaled $0.5 million, and resulted from the sale of marine containers, railcars,
and trailers, with an aggregate net book value of $0.6 million, for proceeds of
$1.1 million.
(d) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
(USPEs)
Equity in net income (loss) of USPEs represents the Partnership's share of the
net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method of accounting. This entity was a single purpose
entity that had no debt. The following table presents equity in net income
(loss) by equipment type (in thousands of dollars):
For the Years Ended
Ended December 31,
2001 2000
------------------------------
Marine vessel $ (186) $ 298
Aircraft -- 1,308
------------------------------
Equity in net income (loss) of USPEs $ (186) $ 1,606
==============================
Marine vessel: During 2001, lease revenues of $2.0 million were offset by
depreciation expense, direct expenses, and administrative expenses of $2.2
million. During 2000, lease revenues of $4.0 million were offset by depreciation
expense, direct expenses, and administrative expenses of $3.7 million,
respectively.
Lease revenues decreased $2.0 million in 2001 compared to 2000. Lease revenues
decreased $1.2 million due to lower lease rates in 2001 compared to 2000. A
decrease of $0.5 million due to this marine vessel being off-lease for
approximately two months while completing its dry docking during 2001 and a $0.3
million decrease was due to it being off-lease for an additional 1-1/2 months
during 2001.
Depreciation expense, direct expenses, and administrative expenses decreased
$1.5 million during the year ended December 31, 2001 compared to the same period
of 2000. A decrease in direct expenses of $0.4 million was due to the marine
vessel incurring lower operating costs while in dry dock and $0.9. million was
due to the marine vessel incurring lower operating costs while off-lease in
2001, a decrease of $0.2 million caused by lower repairs and maintenance
compared to the same period of 2000.
Aircraft: The Partnership sold its remaining interest in a trust that owned an
aircraft in the first quarter of 2000. The gain from this sale was $1.4 million,
which was partially offset by depreciation expense, direct expenses, and
administrative expenses of $0.2 million.
(e) Net Income
As a result of the foregoing, the Partnership's net income of $1.4 million for
the year ended December 31, 2001 compared to net income of $3.8 million during
the same period in 2000. The Partnership's ability to operate, or liquidate
assets, secure leases, and re-lease those assets whose leases expire is subject
to many factors. Therefore, the Partnership's performance in the year ended
December 31, 2001 is not necessarily indicative of future periods. In the year
ended December 31, 2001, the Partnership distributed $2.1 million to the limited
partners, or $0.36 per weighted-average depositary unit.
(2) Comparison of the Partnership's Operating Results for the Years Ended
December 31, 2000 and 1999.
In September 1999, PLM Financial Services, Inc. (FSI or the General Partner),
amended the corporate-by laws of certain USPEs in which the Partnership, or any
affiliated program, owned an interest greater than 50%. The amendment to the
corporate-by-laws provided that all decisions regarding the acquisition and
disposition of the investment as well as other significant business decisions of
that investment would be permitted only upon unanimous consent of the
Partnership and all the affiliated programs that have an ownership in the
investment (the Amendment). As such, although the Partnership may own a majority
interest in a USPE, the Partnership does not control its management and thus the
equity method of accounting will be used after adoption of the Amendment. As a
result of the Amendment, as of September 30, 1999, all jointly owned equipment
in which the Partnership owned a majority interest, which had been consolidated,
were reclassified to investments in USPEs. Lease revenues and direct expenses
for jointly owned equipment in which the Partnership held a majority interest
were reported under the consolidation method of accounting during the year ended
December 31, 1999 and were included with the owned equipment operations. For the
three months ended December 31, 1999 and twelve months ended December 31, 2000,
lease revenues and direct expenses for these entities are reported under the
equity method of accounting and are included with the operations of the USPE.
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating and asset-specific insurance expenses) on owned equipment
decreased during the year ended December 31, 2000, compared to the same period
of 1999.
The following table presents lease revenues less direct expenses by segment (in
thousands of dollars):
For the Years Ended
December 31,
2000 1999
---------------------------
Rail equipment $ 3,949 $ 3,972
Trailers 192 330
Marine containers 98 140
Rail equipment: Rail equipment lease revenues and direct expenses were $5.6
million and $1.7 million, respectively, for the year ended December 31, 2000,
compared to $5.7 million and $1.8 million, respectively, for the same period of
1999. Direct revenues and expenses were slightly lower due to a group of
railcars being off lease at the end of 2000.
Trailers: Trailer lease revenues and direct expenses were $0.3 million and $0.1
million, respectively, for the year ended December 31, 2000, compared to $0.5
million and $0.1 million, respectively, for the same period of 1999. The
decrease in trailer contribution resulted from the sale of the Partnership's
remaining trailers in 2000.
Marine containers: Marine container lease revenues and direct expenses were $0.1
million and $1,000 respectively, for the years ended December 31, 2000 and 1999.
(b) Interest and Other Income
Interest and other income decreased by $0.2 million in 2000 compared to 1999 due
to lower income on the railcars related to mileage charges.
(c) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses were $2.6 million for the years ended December 31, 2000
and 1999. While there was no change in the total indirect expenses from 1999 to
2000, some components of these expenses had material fluctuations. Significant
fluctuations are as follows:
(i) a $0.1 million decrease in depreciation expense due to equipment
dispositions.
(ii)a $0.1 million decrease in management fee to affiliates reflects
reduced cash flow.
(iii) a $0.2 million increase in bad debt expense related to the collection
of an account receivable in 1999 that had been previously reserved for as a bad
debt. A similar event did not occur in 2000.
(d) Net Gain on Disposition of Owned Equipment
The net gain on disposition of owned equipment for 2000 totaled $0.5 million,
and resulted from the sale of marine containers, railcars, and trailers, with an
aggregate net book value of $0.6 million, for aggregate proceeds of $1.1
million. In 1999, the net gain on disposition of owned equipment totaled $0.2
million, and resulted from the sale of marine containers, trailers and railcars,
with an aggregate net book value of $0.1 million, for aggregate proceeds of $0.3
million.
(e) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
(USPEs)
Equity in net income (loss) of USPEs represent the Partnership's share of the
net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method of accounting. These entities were single purpose
and had no debt. The following table presents equity in net income (loss) by
equipment type (in thousands of dollars):
For the Years
Ended December 31,
2000 1999
-----------------------------
Aircraft $ 1,308 $ 2,531
Marine vessel 298 (484)
-----------------------------
Equity in net income of USPEs $ 1,606 $ 2,047
=============================
Aircraft: The Partnership's remaining interest in an entity which owned an
aircraft was sold in the first quarter of 2000 for a gain of $1.4 million. This
aircraft was off lease during 2000 and 1999. In 1999, the Partnership sold it's
interest in an entity owning a commercial aircraft for gain of $3.0 million. The
aircraft had revenues and expenses of $0.2 million and $0.2 million
respectively, prior to its sale.
Marine vessel: As of December 31, 2000 and 1999, the Partnership had an interest
in an entity that owns a marine vessel. The Partnership's share of marine vessel
revenues and expenses was $4.0 million and $3.7 million for 2000, compared to
$2.0 million and $2.5 million, respectively, for 1999. Marine vessel
contribution increased due to higher charter rates during 2000. Higher voyage
charter rates in 2000 were due to the increased demand for petroleum products in
Europe and Asia. Expenses increased in 2000 due to additional voyages made in
2000 compared to 1999.
(f) Net Income
As a result of the foregoing, the Partnership's net income of $3.8 million for
2000, compared to net income of $4.3 million during 1999. The Partnership's
ability to operate, liquidate assets, and re-lease those assets whose leases
expire is subject to many factors, and the Partnership's performance during the
year ended December 31, 2000 is not necessarily indicative of future periods. In
the year ended December 31, 2000, the Partnership distributed $5.3 million to
the limited partners, or $0.91 per weighted-average depositary unit.
(F) Geographic Information
Certain of the Partnership's equipment operates in international markets.
Although these operations expose the Partnership to certain currency, political,
credit, and economic risks, the General Partner believes that these risks are
minimal or has implemented strategies to control the risks. Currency risks are
at a minimum because all invoicing, with the exception of a small number of
railcars operating in Canada, is conducted in U.S. dollars. Political risks are
minimized generally through the avoidance of operations in countries that do not
have a stable judicial system and established commercial business laws. Credit
support strategies for lessees range from letters of credit supported by U.S.
banks to cash deposits. Although these credit support mechanisms allow the
Partnership to maintain its lease yield, there are risks associated with
slow-to-respond judicial systems when legal remedies are required to secure
payment or repossess equipment. Economic risks are inherent in all international
markets and the General Partner strives to minimize this risk with market
analysis prior to committing equipment to a particular geographic area. Refer to
Note 6 to the financial statements for information on the revenues, net income
(loss), and net book value of equipment in various geographic regions.
Revenues and net operating income (loss) by geographic region are impacted by
the time period the asset is owned and the useful life ascribed to the asset for
depreciation purposes. Net income (loss) from equipment is significantly
impacted by depreciation charges, which are greatest in the early years of
ownership due to the use of the double-declining balance method of depreciation.
The relationships of geographic revenues, net income (loss), and net book value
of equipment are expected to significantly change in the future as assets come
off lease and decisions are made to either redeploy the assets in the most
advantageous geographic location, or sell the assets.
The Partnership owned equipment on lease to the U.S. domiciled lessees consisted
of railcars. During 2001, U.S. lease revenues accounted for 16% of the lease
revenues generated by wholly and jointly-owned equipment. U.S. operations
resulted in a net loss of $0.6 million.
The Partnership's owned equipment leased to Canadian-domiciled lessees consists
of railcars. Canadian lease revenue accounted for 56% of total lease revenues
generated by wholly-and jointly owned equipment. Canadian operations generated
net income of $3.0 million.
The Partnership owned equipment on lease to lessees operating in the rest of the
world consisted of marine containers and a 50% investment in a partnership that
owns a marine vessel. During 2001, lease revenues from the rest of the world
accounted for 29% of the lease revenues generated by wholly and jointly-owned
equipment. The operations in the rest of the world resulted in a net loss of
$0.2 million.
(G) Inflation
Inflation had no significant impact on the Partnership's operations during 2001,
2000, or 1999.
(H) Forward-Looking Information
Except for historical information contained herein, the discussion in this Form
10-K contains forward-looking statements that involve risks and uncertainties,
such as statements of the Partnership's plans, objectives, expectations, and
intentions. The cautionary statements made in this Form 10-K should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-K. The Partnership's actual results could differ materially from
those discussed here.
(I) Outlook for the Future
Since the Partnership is in its active liquidation phase, the General Partner
will be seeking to selectively re-lease or sell assets as the existing leases
expire. Sale decisions will cause the operating performance of the Partnership
to decline over the remainder of its life. Throughout the remaining life of the
Partnership, the Partnership may periodically make special distributions to the
partners as asset sales are completed.
Liquidation of the Partnership's equipment will cause a reduction in the size of
the equipment portfolio and may result in a reduction of contribution to the
Partnership. Other factors affecting the Partnership's contribution in the year
2002 include:
1. The Partnership's fleet of marine containers is in excess of twelve years
of age and is no longer suitable for use in international commerce either
due to its specific physical condition, or lessee's preferences for newer
equipment. Demand for the Partnership's marine containers will continue to
be weak due to their age.
2. Railcar loadings in North America have weakened over the past year. During
2001, utilization and lease rates decreased. Railcar contribution may
decrease in 2002 as existing leases expire and renewal leases are
negotiated.
The ability of the Partnership to realize acceptable lease rates on its
equipment in the different equipment markets is contingent on many factors, such
as specific market conditions and economic activity, technological obsolescence,
and government or other regulations. The General Partner continually monitors
both the equipment markets and the performance of the Partnership's equipment in
these markets. The General Partner may make an evaluation to reduce the
Partnership's exposure to equipment markets in which it determines that it
cannot operate equipment and achieve acceptable rates of return.
Several other factors may affect the Partnership's operating performance in 2002
and beyond, including changes in the markets for the Partnership's equipment and
changes in the regulatory environment in which that equipment operates.
The other factors affecting the Partnership's contribution in 2002 and beyond
include:
(1) Repricing Risk
Certain of the Partnership's marine containers, railcars and trailers will be
remarketed in 2002 as existing leases expire, exposing the Partnership to
repricing risk/opportunity. Additionally, the Partnership entered its
liquidation phase on January 1, 2000, and has commenced an orderly liquidation
of the Partnership's assets. The General Partner intends to re-lease or sell
equipment at prevailing market rates; however, the General Partner cannot
predict these future rates with any certainty at this time, and cannot
accurately assess the effect of such activity on future Partnership performance.
(2) Impact of Government Regulations on Future Operations
The General Partner operates the Partnership's equipment in accordance with
current applicable regulations (see Item 1, Section E, Government Regulations).
However, the continuing implementation of new or modified regulations by some of
the authorities mentioned previously, or others, may adversely affect the
Partnership's ability to continue to own or operate equipment in its portfolio.
Additionally, regulatory systems vary from country to country, which may
increase the burden to the Partnership of meeting regulatory compliance for the
same equipment operated between countries. Ongoing changes in the regulatory
environment, both in the United States and internationally, cannot be predicted
with accuracy, and preclude the General Partner from determining the impact of
such changes on Partnership operations, or sale of equipment.
The U.S. Department of Transportation's Hazardous Materials Regulations
regulates the classification and packaging requirements of hazardous materials
that apply particularly to Partnership's tank railcars. The Federal Railroad
Administration has mandated that effective July 1, 2000 all tank railcars must
be re-qualified every ten years from the last test date stenciled on each
railcar to insure tank shell integrity. Tank shell thickness, weld seams, and
weld attachments must be inspected and repaired if necessary to re-qualify the
tank railcar for service. The average cost of this inspection is $3,600 for
jacketed tank railcars and $1,800 for non-jacketed tank railcars, not including
any necessary repairs. This inspection is to be performed at the next scheduled
tank test and every ten years thereafter. The Partnership currently owns 812
jacketed tank railcars and 20 non-jacketed tank railcars that will need
re-qualification. As of December 31, 2001, a total of 99 been inspected and no
significant defects have been discovered.
(3) Distributions
During the active liquidation phase, the Partnership will use operating cash
flow and proceeds from the sale of equipment to meet its operating obligations,
and to the extent available, make distributions to the partners. In the long
term, changing market conditions and used equipment values preclude the General
Partner from accurately determining the impact of future re-leasing activity and
equipment sales on Partnership performance and liquidity.
(4) Liquidation
Liquidation of the Partnership's equipment and the Partnership's investment in a
USPE represents a reduction in the size of the equipment portfolio and may
result in a reduction of contribution to the Partnership.
Since the Partnership is in its active liquidation phase, the size of the
Partnership's remaining equipment portfolio and, in turn, the amount of net cash
flows from operations will continue to become progressively smaller as assets
are sold. Significant asset sales may result in potential special distributions
to unitholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposure is currency devaluation risk.
During 2001, 85% of the Partnership's total lease revenues came from non-United
States domiciled lessees. Most of the leases require payment in United States
(U.S.) currency. If these lessees' currency devalues against the U.S. dollar,
the lessees could potentially encounter difficulty in making the U.S. dollar
denominated lease payment.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements for the Partnership are listed in the Index to
Financial Statements included in Item 14(a) of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
(A) Disagreements with Accountants on Accounting and Financial Disclosures
None
(B) Changes in Accountants
In September 2001, the General Partner announced that the Partnership had
engaged Deloitte & Touche LLP as the Partnership's auditors and had dismissed
KPMG LLP. KPMG LLP issued unqualified opinions on the 1999 and 2000 financial
statements. During 1999 and 2000 and the subsequent interim periods preceding
such dismissal, there were no disagreements with KPMG LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PLM FINANCIAL SERVICES, INC.
As of the date of this annual report, the directors and executive officers of
PLM Financial Services, Inc. (and key executive officers of its subsidiaries)
are as follows:
Name Age Position
- ---------------------------------------- ------- ------------------------------------------------------------------
Gary D. Engle 52 Director, PLM Financial Services, Inc., PLM Investment
Management Inc., and PLM Transportation Equipment Corp.
James A. Coyne 41 Director and Secretary, PLM Financial Services Inc., PLM
Investment Management, Inc., and PLM Transportation Equipment
Corp.
Stephen M. Bess 55 President and Director, PLM Financial Services, Inc., PLM
Investment Management Inc., and PLM Transportation Equipment
Corp.
Gary D. Engle was appointed a Director of PLM Financial Services, Inc. in
January 2002. He was appointed a director of PLM International, Inc. in February
2001. He is a director and President of MILPI. Since November 1997, Mr. Engle
has been Chairman and Chief Executive Officer of Semele Group Inc. ("Semele"), a
publicly traded company. Mr. Engle is President and Chief Executive Officer of
Equis Financial Group ("EFG"), which he joined in 1990 as Executive Vice
President. Mr. Engle purchased a controlling interest in EFG in December 1994.
He is also President of AFG Realty, Inc.
James A. Coyne was appointed a Director and Secretary of PLM Financial Services
Inc. in April 2001. He was appointed a director of PLM International, Inc in
February 2001. He is a director, Vice President and Secretary of MILPI. Mr.
Coyne has been a director, President and Chief Operating Officer of Semele since
1997. Mr. Coyne is Executive Vice President of Equis Corporation, the general
partner of EFG. Mr. Coyne joined EFG in 1989, remained until 1993, and rejoined
in November 1994.
Stephen M. Bess was appointed a Director of PLM Financial Services, Inc. in July
1997. Mr. Bess was appointed President of PLM Financial Services, Inc. in
October 2000. He was appointed President and Chief Executive Officer of PLM
International, Inc. in October 2000. Mr. Bess was appointed President of PLM
Investment Management, Inc. in August 1989, having served as Senior Vice
President of PLM Investment Management, Inc. beginning in February 1984 and as
Corporate Controller of PLM Financial Services, Inc. beginning in October 1983.
He served as Corporate Controller of PLM, Inc. beginning in December 1982. Mr.
Bess was Vice President-Controller of Trans Ocean Leasing Corporation, a
container leasing company, from November 1978 to November 1982, and Group
Finance Manager with the Field Operations Group of Memorex Corporation, a
manufacturer of computer peripheral equipment, from October 1975 to November
1978.
The directors of PLM Financial Services, Inc. are elected for a one-year term or
until their successors are elected and qualified. No family relationships exist
between any director or executive officer of PLM Financial Services, Inc., PLM
Transportation Equipment Corp., or PLM Investment Management, Inc.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no directors, officers, or employees. The Partnership had no
pension, profit sharing, retirement, or similar benefit plan in effect as of
December 31, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) Security Ownership of Certain Beneficial Owners
The General Partner is entitled to a 1% interest in the profits and losses
(subject to certain allocations of income) and distributions of the
Partnership. As of December 31, 2001, no investor was known by the General
Partner to beneficially own more than 5% of the depositary units of the
Partnership.
(B) Security Ownership of Management
Neither the General Partner and its affiliates nor any executive office or
director of the General Partner and its affiliates own any depository units
of the Partnership as of December 31, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(A) Transactions with Management and Others
During 2001, management fees to IMI were $0.3 million. During 2001, the
Partnership reimbursed FSI or its affiliates $0.3 million for
administrative services and data processing expenses performed on behalf of
the Partnership.
During 2001, the USPE, partially owned by the Partnership, reimbursed FSI
or its affiliates $0.1 million for administrative and data processing
services. Management fees of $14,000 were paid by the USPE in 2001.
(This space is intentionally left blank)
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. Financial Statements
The financial statements listed in the accompanying Index to Financial
Statements are filed as part of this Annual Report on Form 10-K.
2. Financial Statements required under Regulation S-X Rule 3-09.
The following financial statements are filed as exhibits of the Annual
Report on Form 10-K:
a. Boeing 767
b. Clement Partnership
(B) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
All other financial statement schedules have been omitted, as the
required information is not pertinent to the registrant or is not
material, or because the information is included in the financial
statements and notes thereto.
(C) Reports on Form 8-K
None.
(D) Exhibits
4. Limited Partnership Agreement of Partnership, incorporated by
reference to the Partnership's Registration Statement on Form S-1
(Reg. No. 33-2834), which became effective with the Securities and
Exchange Commission on May 20, 1986.
4.1 Amendment, dated November 18, 1991, to Limited Partnership Agreement
of Partnership, incorporated by reference to the Partnership Form 10-K
dated December 31, 1992, filed with the Securities and Exchange
Commission on March 30,1993.
10.1 Management Agreement between the Partnership and PLM Investment
Management, Inc., incorporated by reference to the Partnership's
Registration Statement on Form S-1 (Reg. No. 33-2834), which became
effective with the Securities and Exchange Commission on May 20, 1986.
Financial Statements required under Regulation S-X Rule 3-09:
99.1. Boeing 767
99.2 Clement Partnership
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
The Partnership has no directors or officers. The General Partner has signed on
behalf of the Partnership by duly authorized officers.
Dated: March 26, 2002 PLM EQUIPMENT GROWTH FUND
PARTNERSHIP
By: PLM Financial Services, Inc.
General Partner
By: /s/ Stephen M. Bess
-----------------------------------
Stephen M. Bess
President and Current Chief Accounting
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following directors of the Partnership's General
Partner on the dates indicated.
Name Capacity Date
/s/ Gary D. Engle
- --------------------
Gary D. Engle Director, FSI March 26, 2002
/s/ James A. Coyne
- --------------------
James A. Coyne Director, FSI March 26, 2002
/s/ Stephen M. Bess
- --------------------
Stephen M. Bess Director, FSI March 26, 2002
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
INDEX TO FINANCIAL STATEMENTS
(Item 14(a))
Page
Independent auditors' reports 22-23
Balance sheets as of December 31, 2001 and 2000 24
Statements of income for the years ended December 31,
2001, 2000, and 1999 25
Statements of changes in partners' capital for the years
ended December 31, 2001, 2000, and 1999 26
Statements of cash flows for the years ended December 31,
2001, 2000, and 1999 27
Notes to financial statements 28-37
Independent auditors' reports on financial statement schedule 38-39
Schedule II Valuation and Qualifying Accounts 40
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund:
We have audited the accompanying balance sheet of PLM Equipment Growth Fund (the
"Partnership") as of December 31, 2001 and the related statements of income,
changes in partners' capital and cash flows for the year then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We have 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 Partnership 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.
As described in Note 1 to the financial statements, PLM Equipment Growth Fund,
in accordance with the limited partnership agreement, entered its liquidation
phase on January 1, 1998 and has commenced an orderly liquidation of the
Partnership assets. The Partnership will terminate on December 31, 2006, unless
terminated earlier upon sale of all equipment or by certain other events.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Tampa, Florida
March 8, 2002
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund:
We have audited the accompanying balance sheet of PLM Equipment Growth Fund
("the Partnership") as of December 31, 2000 and the related statements of
income, changes in partners' capital and cash flows for each of the years in the
two-year period ended December 31, 2000. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
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, PLM Equipment Growth Fund,
in accordance with the limited partnership agreement, entered its liquidation
phase on January 1, 1998 and has commenced an orderly liquidation of the
Partnership assets. The Partnership will terminate on December 31, 2006, unless
terminated earlier upon sale of all equipment or by certain other events.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the PLM Equipment Growth Fund
as of December 31, 2000 and the results of its operations and its cash flows for
each of the years in the two-year period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
SAN FRANCISCO, CALIFORNIA
March 12, 2001
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31,
(in thousands of dollars, except unit amounts)
2001 2000
----------------------------------
assets
Equipment held for operating leases, at cost $ 21,601 $ 22,046
Less accumulated depreciation (21,213) (20,414)
---------------------------------
Net equipment 388 1,632
Cash and cash equivalents 3,354 2,596
Accounts receivable, less allowance for doubtful accounts
of $124 in 2001 and $103 in 2000 314 203
Investment in an unconsolidated special-purpose entity 630 1,028
Prepaid expenses and other assets 30 38
---------------------------------
Total assets $ 4,716 $ 5,497
=================================
liabilities and partners' capital
Liabilities:
Accounts payable and accrued expenses $ 182 $ 219
Due to affiliates 19 36
Lessee deposits 12 2
---------------------------------
Total liabilities 213 257
---------------------------------
Commitments and contingencies
Partners' capital:
Limited partners (5,784,275 depositary units as of
December 31, 2001 and 2000) 4,503 5,240
General Partner -- --
---------------------------------
Total partners' capital 4,503 5,240
---------------------------------
Total liabilities and partners' capital $ 4,716 $ 5,497
=================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
(in thousands of dollars, except weighted-average unit amounts)
2001 2000 1999
--------------------------------------------
REVENUES
Lease revenue $ 5,321 $ 6,019 $ 6,339
Interest and other income 126 164 321
Net gain on disposition of equipment 98 486 156
-------------------------------------------
Total revenues 5,545 6,669 6,816
-------------------------------------------
EXPENSES
Depreciation 1,213 1,408 1,505
Repairs and maintenance 1,561 1,764 1,876
Insurance expense 131 54 44
Management fees to affiliate 280 357 415
General and administrative expenses to affiliate 286 218 303
Other general and administrative expenses 476 572 516
Provision for (recovery of) bad debts 23 98 (117)
-------------------------------------------
Total expenses 3,970 4,471 4,542
-------------------------------------------
Equity in net income (loss) of unconsolidated
special-purpose entities (186) 1,606 2,047
-------------------------------------------
Net income $ 1,389 $ 3,804 $ 4,321
===========================================
PARTNERS' SHARE OF NET INCOME
Limited partners $ 1,368 $ 3,751 $ 4,222
General partner 21 53 99
-------------------------------------------
Total $ 1,389 $ 3,804 $ 4,321
===========================================
Limited partners net income per weighted-average depositary unit $ 0.24 $ 0.65 $ 0.73
===========================================
Cash distribution $ 2,126 $ 3,858 $ 3,850
Special distribution -- 1,460 6,044
-------------------------------------------
Total distribution $ 2,126 $ 5,318 $ 9,894
===========================================
Per weighted-average depositary unit:
Cash distribution $ 0.36 $ 0.66 $ 0.66
Special distribution -- 0.25 1.04
-------------------------------------------
Total distribution $ 0.36 $ 0.91 $ 1.70
===========================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
(in thousands of dollars)
Limited General
Partners Partner Total
--------------------------------------------
Partners' capital as of December 31, 1998 $ 12,327 $ -- $ 12,327
Net income 4,222 99 4,321
Cash distribution (3,811) (39) (3,850)
Special distribution (5,984) (60) (6,044)
-----------------------------------------------
Partners' capital as of December 31, 1999 6,754 -- 6,754
Net income 3,751 53 3,804
Cash distribution (3,819) (39) (3,858)
Special distribution (1,446) (14) (1,460)
-----------------------------------------------
Partners' capital as of December 31, 2000 5,240 -- 5,240
Net income 1,368 21 1,389
Cash distribution (2,105) (21) (2,126)
---------------------------------------------
Partners' capital as of December 31, 2001 $ 4,503 $ -- $ 4,503
===============================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(in thousands of dollars)
2001 2000 1999
--------------------------------------------
OPERATING ACTIVITIES
Net income $ 1,389 $ 3,804 $ 4,321
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 1,213 1,408 1,505
Net gain on disposition of equipment (98) (486) (156)
Equity in net (income) loss from unconsolidated special-
purpose entities 186 (1,606) (2,047)
Changes in operating assets and liabilities:
Accounts receivable, net (111) 162 (60)
Prepaid expenses and other assets 8 -- (12)
Accounts payable and accrued expenses (37) (118) 206
Due to affiliates (17) (27) (462)
Lessee deposits 10 (61) 26
------------------------------------------------
Net cash provided by operating activities 2,543 3,076 3,321
------------------------------------------------
INVESTING ACTIVITIES
Payments for capital improvements -- -- (31)
Additional investment in unconsolidated special-purpose
entities to fund operations -- -- (835)
Liquidation of investment in equipment placed in
unconsolidated special-purpose entities -- 1,769 4,794
Distribution from unconsolidated special-purpose entities 212 564 482
Proceeds from disposition of equipment 129 1,059 320
------------------------------------------------
Net cash provided by investing activities 341 3,392 4,730
------------------------------------------------
FINANCING ACTIVITIES
Cash distribution paid to limited partners (2,105) (3,819) (3,811)
Cash distribution paid to General Partner (21) (39) (39)
Special distribution paid to limited partners -- (1,446) (5,984)
Special distribution paid to General Partner -- (14) (60)
------------------------------------------------
Net cash used in financing activities (2,126) (5,318) (9,894)
------------------------------------------------
Net increase (decrease) in cash and cash equivalents 758 1,150 (1,843)
Cash and cash equivalents at beginning of year 2,596 1,446 3,289
------------------------------------------------
Cash and cash equivalents at end of year $ 3,354 $ 2,596 $ 1,446
================================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
ORGANIZATION
PLM Equipment Growth Fund, a California limited partnership (the Partnership),
was formed on January 28, 1986. The Partnership engages primarily in the
business of owning, leasing, or otherwise investing in predominantly used
transportation and related equipment. PLM Financial Services, Inc. (FSI) is the
General Partner of the Partnership. FSI is a wholly owned subsidiary of PLM
International, Inc. (PLM International).
The Partnership, in accordance with its limited partnership agreement, entered
its liquidation phase on January 1, 1998, and has commenced an orderly
liquidation of the Partnership assets. The Partnership will terminate on
December 31, 2006, unless terminated earlier upon the sale of all equipment or
by certain other events. The General Partner may no longer reinvest cash flows
and surplus funds in equipment. All future cash flows and surplus funds, if any,
are to be used for distributions to partners, except to the extent used to
maintain reasonable reserves. During the liquidation phase, the Partnership's
assets will continue to be recorded at the lower of the carrying amount or fair
value less cost to sell.
FSI manages the affairs of the Partnership. The cash distributions of the
Partnership are allocated 99% to the limited partners and 1% to the General
Partner (see Net Income and Distributions per Depositary Unit, below). Net
income is allocated to the General Partner to the extent necessary to cause the
General Partner's capital account to equal zero. The General Partner is entitled
to a subordinated incentive fee equal to 15% of surplus distributions, as
defined in the limited partnership agreement, remaining after the limited
partners have received a certain minimum rate of return. The General Partner
does not anticipate that this fee will be earned.
ESTIMATES
The 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.
OPERATIONS
The equipment of the Partnership is 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 Partnership for managing
the equipment (see Note 2). FSI, in conjunction with its subsidiaries, sells
equipment to investor programs and third parties, manages pools of equipment
under agreements with the investor programs, and is a general partner of other
programs.
ACCOUNTING FOR LEASES
The Partnership's leasing operations consist of 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 (SFAS) No. 13, "Accounting for Leases." Lease origination
costs are capitalized and amortized over the term of the lease.
PLM EQUIPMENT GROWTH FUND
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION (continued)
DEPRECIATION
Depreciation of transportation equipment held for operating leases is computed
on the double-declining balance method, taking a full month's depreciation in
the month of acquisition, based upon estimated useful lives of 15 years for
railcars and 12 years for other types of equipment. 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 and certain other acquisition costs have been
capitalized as part of the cost of the equipment. Major expenditures that are
expected to extend the useful lives or reduce future operating expenses of
equipment are capitalized and amortized over the remaining life of the
equipment.
TRANSPORTATION EQUIPMENT
Equipment held for operating leases is stated at cost.
In accordance with SFAS No. 121, "Accounting For the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of (SFAS No. 121), the General
Partner reviews the carrying value of the Partnership's equipment portfolio at
least quarterly and whenever circumstances indicate that the carrying value of
an asset would not be recoverable due to expected future market conditions. If
the projected undiscounted cash flows and the fair market value of the equipment
were less than the carrying value of the equipment, a loss on revaluation is
recorded. No reductions to the carrying values of wholly and partially owned
USPE equipment were required during 2001, 2000 or 1999.
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 replaces SFAS No. 121. SFAS No 144 provides updated guidance concerning
the recognition and measurement of an impairment loss for certain types of
long-lived assets, expands the scope of a discontinued operation to include a
component of an entity and eliminates the current exemption to consolidation
when control over a subsidiary is likely to be temporary. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001.
The Partnership will apply the new rules on accounting for the impairment or
disposal of long-lived assets beginning in the first quarter of 2002, and they
are not anticipated to have an impact on the Partnership's earnings or financial
position.
INVESTMENT IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITY
The Partnership has an interest in an unconsolidated special-purpose entity
(USPE) that owns a marine vessel. This is a single purpose entity that does not
have any debt and is accounted for using the equity method.
The Partnership's investment in an USPE includes acquisition and lease
negotiation fees paid by the Partnership to PLM Transportation Equipment
Corporation (TEC). TEC is a wholly-owned subsidiary of FSI. The Partnership's
interest in the USPEs is managed by IMI. The Partnership's equity interest in
net income (loss) of USPEs is reflected net of management fees paid or payable
to IMI and the amortization of acquisition and lease negotiation fees paid to
TEC.
REPAIRS AND MAINTENANCE
Repairs and maintenance costs related to railcars, marine vessels, and trailers
are usually the obligation of the Partnership. Maintenance costs of the marine
containers are the obligation of the lessee. If they are not covered by the
lessee, they are charged against operations as incurred.
PLM EQUIPMENT GROWTH FUND
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION (continued)
NET INCOME AND DISTRIBUTIONS PER DEPOSITARY UNIT
Cash distributions are allocated 99% to the limited partners and 1% to the
General Partner and may include amounts in excess of net income. The limited
partners' net income (loss) is allocated among the limited partners based on the
number of limited partnership units owned by each limited partner and on the
number of days of the year each limited partner is in the Partnership. During
2001, the General Partner received a special allocation of income of $7,000
($14,000 in 2000 and $0.1 million in 1999) in excess of its pro-rata ownership
share.
Cash distributions are recorded when paid. Cash distributions to the limited
partners of $-0-, $1.0 million, and $1.0 million for the years ended December
31, 2001, 2000, and 1999, respectively, were paid in 2002, 2001, and 2000
respectively.
Special distributions of $1.5 million and $6.0 million were paid in 2000, and
1999 respectively. No special distributions were paid during 2001.
Cash distributions to investors in excess of net income are considered a return
of capital. Cash distributions to limited partners of $0.7 million in 2001, $1.5
million in 2000 and $5.6 million in 1999 were deemed to be a return of capital.
None of the cash distributions paid to the limited partners during 2001 were
deemed a return of capital.
NET INCOME PER WEIGHTED-AVERAGE DEPOSITARY UNIT
Net income per weighted-average depositary unit was computed by dividing net
income attributable to limited partners by the weighted-average number of
depositary units deemed outstanding during the period. The weighted-average
number of depositary units deemed outstanding during the years ended December
31, 2001, 2000, and 1999 were 5,784,275.
CASH AND CASH EQUIVALENTS
The Partnership considers highly liquid investments that are readily convertible
to known amounts of cash with original maturities of three months or less as
cash equivalents. The carrying amount of cash equivalents approximates fair
market value due to the short-term nature of the investments.
COMPREHENSIVE INCOME
The Partnership's comprehensive income was equal to net income for the years
ended December 31, 2001, 2000, and 1999.
2. GENERAL PARTNER AND TRANSACTIONS WITH AFFILIATES
An officer of FSI contributed $100 of the Partnership's initial capital. Under
the equipment management agreement, IMI receives a monthly management fee
attributable to either owned equipment or interests in equipment owned by the
USPEs equal to the greater of (a) 10% of cash flows or (b) 1/12 of 1/2% of the
book value of the equipment portfolio, subject to a reduction in certain events,
as described in the limited partnership agreement. The Partnership's management
fee in 2001 was equal to 10% of cash flows. Partnership management fees of
$19,000 and $36,000 were payable to IMI as of December 31, 2001, and 2000,
respectively. The Partnership reimbursed FSI and its affiliates $0.3 million,
$0.2 million, and $0.3 million in 2001, 2000 and 1999, respectively, for data
processing expenses and administrative services performed on behalf of the
Partnership.
PLM EQUIPMENT GROWTH FUND
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
2. GENERAL PARTNER AND TRANSACTIONS WITH AFFILIATES (continued)
The Partnership's proportional share of USPE management fees to affiliate were
$14,000, $0.1 million, and $-0- during 2001, 2000, and 1999, respectively, and
the Partnership's portional share of administrative and data processing expenses
to affiliate were $0.1 million, $37,000, and $56,000 during 2001, 2000, and
1999, respectively. Both of these affiliate expenses reduced the Partnership's
proportional share of the equity interest in income in USPEs.
The Partnership owned certain equipment in conjunction with affiliated programs
(see Note 4).
3. EQUIPMENT
The components of owned equipment as of December 31, are as follows (in
thousands of dollars):
Equipment held for operating leases 2001 2000
----------------------------------------------- ----------------------------------
Railcars $ 21,016 $ 21,340
Marine containers 585 706
---------------------------------
21,601 22,046
Less accumulated depreciation (21,213) (20,414)
---------------------------------
Net equipment $ 388 $ 1,632
=================================
Revenues are earned by placing equipment under operating leases. The
Partnership's marine containers are leased to operators of utilization-type
leasing pools that include equipment owned by unaffiliated parties. In such
instances, revenues received by the Partnership consist of a specified
percentage of revenues generated by leasing the equipment to sub lessees, after
deducting certain direct operating expenses of the pooled equipment. Rents for
railcars are based on fixed rates.
As of December 31, 2001, all owned equipment in the Partnership portfolio was on
lease except for 30 railcars with an aggregate net book value of $38,000. As of
December 31, 2000, all owned equipment in the Partnership's portfolio was on
lease except for 14 railcars with an aggregate net book value of $20,000.
During 2001, the Partnership disposed of marine containers and railcars owned by
the Partnership, with an aggregate net book value of $31,000 for $0.1 million.
During 2000, the Partnership sold marine containers, trailers and railcars with
a net book value of $0.6 million, for $1.1 million.
All owned and partially owned USPE equipment leases are being accounted for as
operating leases. Future minimum rentals under noncancelable operating leases as
of December 31, 2001 and during each of the next five years are $4.2 million in
2002, $3.0 million in 2003, $2.4 million in 2004, $1.6 million in 2005, and $0.6
million thereafter. Per diem and short-term rentals consisting of utilization
rate lease payments included in revenue amounted to approximately $0.1 million,
$0.4 million and $0.6 million in 2001, 2000, and 1999, respectively.
PLM EQUIPMENT GROWTH FUND
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITIES
The Partnership owns equipment jointly with affiliated program single purpose
entities. These are single purpose entities that do not have any debt or other
financial encumbrances.
The Partnership owned a 50% interest in a partnership owning a marine vessel at
December 31 2001 and 2000.
The following summarizes the financial information for the USPEs and the
Partnership's interest therein as of and for the years ended December 31: (in
thousands of dollars):
2001 2000 1999
Total Net Interest Total Net Interest Total Net Interest
USPE of USPEs of USPEs of
Partnership Partnership Partnership
--------------------------- -------------------------- --------------------------
Net Investments $ 1,230 $ 630 $ 2,025 $ 1,028 $ 3,704 $ 1,755
Lease revenues 4,098 2,049 10,935 5,466 5,742 2,246
Net income (loss) (455) (186) 3,155 1,606 22,304 2,047
As of December 31, 2001 and 2000, all jointly owned equipment in the
Partnership's USPE portfolio was on lease.
5. OPERATING SEGMENTS
The Partnership operates or operated in five primary operating segments:
aircraft leasing, marine container leasing, marine vessel leasing, trailer
leasing, and railcar leasing. Each equipment leasing segment engage in
short-term to mid-term operating leases to a variety of customers.
The General Partner evaluates the performance of each segment based on profit or
loss from operations before allocation of general and administrative expenses,
and certain other expenses. The segments are managed separately due to different
business strategies for each operation.
PLM EQUIPMENT GROWTH FUND
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
5. OPERATING SEGMENTS (continued)
The following tables present a summary of the operating segments (in thousands
of dollars):
Marine Marine
Container Vessel Railcar
For the Year Ended December 31, 2001 Leasing Leasing Leasing All Other (1) Total
------------------------------------ ------- ------- ------- ---- -----
REVENUES
Lease revenue $ 54 $ -- $ 5,267 $ -- $ 5,321
Interest income and other -- -- 22 104 126
Net gain (loss) on disposition of
equipment -- -- 108 (10) 98
-----------------------------------------------------
Total revenues 54 -- 5,397 94 5,545
-----------------------------------------------------
COSTS AND EXPENSES
Operations support -- 2 1,581 109 1,692
Depreciation 33 -- 1,180 -- 1,213
Management fees to affiliate -- -- -- 280 280
General and administrative expenses 1 13 154 594 762
Provision for (recovery of) bad -- -- 62 (39) 23
debts
-----------------------------------------------------
Total costs and expenses 34 15 2,977 944 3,970
-----------------------------------------------------
Equity in net loss of USPEs -- (183) -- (3) (186)
-----------------------------------------------------
Net income (loss) $ 20 $ (198) $ 2,420 $ (853) $ 1,389
=====================================================
Total assets as of December 31, 2001 $ 101 $ 630 $ 601 $ 3,384 $ 4,716
=====================================================
Marine Marine
Aircraft Container Vessel Trailer Railcar
For the Year Ended December 31, 2000 Leasing Leasing Leasing Leasing Leasing All Other(1) Total
------------------------------------ ------- ------- ------- ------- ------- ---------- -----
REVENUES
Lease revenue $ -- $ 99 $ -- $ 273 $ 5,647 $ -- $ 6,019
Interest income and other -- -- -- -- -- 164 164
Net gain (loss) on disposition of
equipment 35 (43 ) -- 473 21 -- 486
-------------------------------------------------------------------------
Total revenues 35 56 -- 746 5,668 164 6,669
-------------------------------------------------------------------------
COSTS AND EXPENSES
Operations support -- 1 -- 81 1,698 38 1,818
Depreciation -- 55 -- 61 1,292 -- 1,408
Management fees to affiliate -- -- -- -- -- 357 357
General and administrative expenses 5 1 2 91 154 537 790
Provision for (recovery of) bad -- -- -- 16 84 (2) 98
debts
-------------------------------------------------------------------------
Total costs and expenses 5 57 2 249 3,228 930 4,471
-------------------------------------------------------------------------
Equity in net income of USPEs 1,308 -- 298 -- -- -- 1,606
-------------------------------------------------------------------------
Net income (loss) $ 1,338 $ (1) $ 296 $ 497 $ 2,440 $ (766) $ 3,804
=========================================================================
Total assets as of December 31, 2000 $ 2 $ 174 $ 1,028 $ -- $ 1,661 $ 2,632 $ 5,497
=========================================================================
1 Includes certain assets not identifiable to a specific segment, such as
cash and prepaid expenses. Also includes interest income and costs not
identifiable to a particular segment, such as management fees to
affiliates, and certain operations support and general and administrative
expenses.
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
5. OPERATING SEGMENTS (continued)
Marine Marine
Aircraft Container Vessel Trailer Railcar
For the Year Ended December 31, 1999 Leasing Leasing Leasing Leasing Leasing All Other(1) Total
------------------------------------ ------- ------- ------- ------- ------- ---- -----
REVENUES
Lease revenue $ -- $ 141 $ -- $ 468 $ 5,730 $ -- $ 6,339
Interest income and other -- 5 -- -- 157 159 321
Net gain (loss) on disposition of
equipment 12 (9) -- 101 52 -- 156
-------------------------------------------------------------------------
Total revenues 12 137 -- 569 5,939 159 6,816
-------------------------------------------------------------------------
COSTS AND EXPENSES
Operations support -- 1 -- 138 1,758 23 1,920
Depreciation -- 95 -- 108 1,302 -- 1,505
Management fees to affiliate -- -- -- -- -- 415 415
General and administrative expenses 3 3 9 122 219 463 819
Provision for (recovery of) bad -- -- -- 19 (133) (3) (117)
debts
-------------------------------------------------------------------------
Total costs and expenses 3 99 (9) 387 3,146 898 4,542
-------------------------------------------------------------------------
Equity in net income (loss) of USPEs 2,531 -- (484) -- -- -- 2,047
-------------------------------------------------------------------------
Net income (loss) $ 2,540 $ 38 $ (493) $ 182 $ 2,793 $ (739) $ 4,321
=========================================================================
(1) Includes interest income and costs not identifiable to a particular segment
such as management fees to affiliate and certain operations support and
general and administrative expenses.
6. GEOGRAPHIC INFORMATION
The Partnership owns certain equipment that is leased and operated
internationally. A limited number of the Partnership's transactions are
denominated in a foreign currency. Gains or losses resulting from foreign
currency transactions are included in the results of operations and are not
material.
The Partnership leases or leased its aircraft, railcars, and trailers to lessees
domiciled in four geographic regions: the United States, Canada, South America,
and Asia. Marine containers are leased to multiple lessees in different regions
who operate worldwide.
The table below sets forth lease revenues by geographic region for the
Partnership's owned equipment and investments in USPEs grouped by domicile of
the lessee as of and for the years ended December 31, (in thousands of dollars):
Owned Equipment Investments in USPEs
----------------------------------------- ---------------------------------------
Region 2001 2000 1999 2001 2000 1999
- ---------------------------------------------------------------- ---------------------------------------
United States $ 1,117 $ 2,055 $ 1,369 $ -- $ -- $ --
South America -- -- -- -- 197
Canada 4,149 3,865 4,829 -- -- --
Rest of the world 55 99 141 2,049 4,029 2,049
--------------------------------------------------------------------------------------
Lease Revenues $ 5,321 $ 6,019 $ 6,339 $ 2,049 $ 4,029 $ 2,246
======================================================================================
PLM EQUIPMENT GROWTH FUND
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
6. GEOGRAPHIC LOCATION (continued)
The following table sets forth income (loss) information by region for the years
ended December 31 (in thousands of dollars):
Owned Equipment Investments in USPEs
----------------------------------------- -----------------------------------------
Region 2001 2000 1999 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------
United States $ (564) $ 491 $ (184) $ -- $ -- $ --
South America -- -- -- -- 1,308 2,980
Canada 2,984 2,447 3,168 -- -- --
Asia -- -- -- -- -- (449)
Rest of the world 20 (1) 38 (186) 298 (484)
--------------------------------------------------------------------------------------
Regional
income (loss) 2,440 2,937 3,022 (186) 1,606 2,047
Administrative
and other (865) (739) (748) -- -- --
-------------------------------------------------------------------------------------
Net income (loss) $ 1,575 $ 2,198 $ 2,274 $ (186) $ 1,606 $ 2,047
======================================================================================
The net book value of these assets at December 31, are as follows (in thousands
of dollars):
Owned Equipment Investments in USPEs
------------------------------------------ ------------------------------------------
Region 2001 2000 1999 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------
United States $ 66 $ 302 $ 933 $ -- $ -- $ --
Canada 249 1,203 2,294 -- -- --
Asia -- -- -- -- -- 357
Rest of the world 73 127 386 630 1,028 1,398
----------------------------------------------------------------------------------------
Net book value $ 388 $ 1,632 $ 3,613 $ 630 $ 1,028 $ 1,755
========================================================================================
7. CONCENTRATIONS OF CREDIT RISK
No single lessee accounted for more than 10% to total consolidated revenues for
the years ended 2001, 2000, or 1999
As of December 31, 2001 and 2000, the General Partner believes the Partnership
had no significant concentrations of credit risk that could have a material
adverse effect on the Partnership.
8. 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. Accordingly, no
provision for income taxes has been made in the financial statements of the
Partnership.
As of December 31, 2001, the federal income tax basis was higher that the
financial statement carrying amount of assets and liabilities by $17.1 million,
primarily due to differences in depreciation methods and the tax treatment of
underwriting commissions and syndication costs.
9. CONTINGENCIES
The Partnership, together with affiliates, has initiated litigation in various
official forums in India and the United States against a defaulting Indian
airline lessee to repossess Partnership property and to recover damages for
failure to pay rent and failure to maintain such property in accordance with the
relevant lease contract. The Partnership has repossessed all of its property
previously leased to such airline and the airline has ceased operations. In
response to the Partnership's collection efforts, the airline filed
counterclaims against the Partnership in excess of the Partnership's claims
against the airline. The General Partner believes that the airline's
counterclaims are completely without merit, and the General
PLM EQUIPMENT GROWTH FUND
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
9. CONTINGENCIES (continued)
Partner will vigorously defend against such counterclaims.
During 2001, the General Partner has decided to minimize its collection efforts
from the India lessee in order to save the Partnership from incurring additional
expenses associated with trying to collect from a lessee that has no apparent
ability to pay.
The Partnership is involved as plaintiff or defendant in various other legal
actions incidental to its business. Management does not believe that any of
these actions will be material to the financial condition or results of
operations of the Partnership.
10. LIQUIDATION AND SPECIAL DISTRIBUTIONS
On January 1, 1998, the General Partner began the liquidation phase of the
Partnership with the intent to commence an orderly liquidation of the
Partnership assets. The General Partner is actively marketing the remaining
equipment portfolio with the intent of maximizing sale proceeds. As sale
proceeds are received, the General Partner intends to periodically declare
special distributions to distribute the sale proceeds to the partners. During
the liquidation phase of the Partnership, the equipment will continue to be
leased under operating leases until sold. Operating cash flows, to the extent
they exceed Partnership expenses, will continue to be distributed on a quarterly
basis to partners. The amounts reflected for assets and liabilities of the
Partnership have not been adjusted to reflect liquidation values. The equipment
portfolio continues to be carried at the lower of depreciated cost or fair value
less cost to dispose. Although the General Partner estimates that there will be
distributions after liquidation of assets and liabilities, the amounts cannot be
accurately determined prior to actual liquidation of the equipment. Any excess
proceeds over expected Partnership obligations will be distributed to the
Partners throughout the liquidation period. Upon final liquidation, the
Partnership will be dissolved.
In 2000 and 1999, the General Partner paid special distributions of $0.25 and
$1.04 per weighted-average depositary unit. The Partnership is not permitted to
reinvest proceeds from sales or liquidations of equipment. These proceeds, in
excess of operational cash requirements, are periodically paid out to limited
partners in the form of special distributions. The sales and liquidations occur
because of certain damaged equipment, the determination by the General Partner
that it is the appropriate time to maximize the return on an asset through sale
of that asset, and, in some leases, the ability of the lessee to exercise
purchase options.
PLM EQUIPMENT GROWTH FUND
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
11. QUARTERLY RESULTS OF OPERATIONS (unaudited)
The following is a summary of the quarterly results of operations for the years
ended December 31, 2001 (in thousands of dollars, except per share amounts):
March June September December
31, 30, 30, 31, Total
------------------------------------------------------------------------------------------
Operating results:
Total revenues $ 1,519 $ 1,353 $ 1,337 $ 1,336 $ 5,545
Net income 195 503 52 639 1,389
Per weighted-average depositary unit:
Net income $ 0.03 $ 0.09 $ 0.01 $ 0.11 $ 0.24
In the second quarter of 2001, the Partnership sold railcars for a gain of $0.1
million. In addition, in the second quarter of 2001 equity income from an USPE
marine vessel increased $0.2 million due to the vessel being in dry dock in the
first quarter of 2001, and going back on hire in the first month of the second
quarter.
In the fourth quarter of 2001, income from an USPE increased $0.6 million over
the previous quarter due to higher utilization.
The following is a summary of the quarterly results of operations for the years
ended December 31, 2000 (in thousands of dollars, except per share amounts):
March June September December
31, 30, 30, 31, Total
------------------------------------------------------------------------------------------
Operating results:
Total revenues $ 1,675 $ 1,509 $ 1,933 $ 1,552 $ 6,669
Net income 1,838 822 1,074 70 3,804
Per weighted-average depositary unit:
Net income $ 0.32 $ 0.14 $ 0.18 $ 0.01 $ 0.65
In the first quarter of 2000, the Partnership earned $1.3 million from the sale
of its interest in a Boeing 737-200.
In the third quarter of 2000, the Partnership had a gain on sale of $0.5 million
from the disposition of trailers, railcars, and marine containers.
In the fourth quarter of 2000, net income from the Partnership's interest in a
marine vessel decreased $0.3 million due to lower utilization.
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund:
We have audited the financial statements of PLM Equipment Growth Fund (the
"Partnership") as of December 31, 2001, and for the year then ended, and have
issued our report thereon dated March 8, 2002; such report is included elsewhere
in this Form 10-K. Our audit also included the financial statement schedule of
PLM Equipment Growth Fund, listed in Item 14. This financial statement schedule
is the responsibility of the Partnership's management. Our responsibility is to
express an opinion based on our audit. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche, LLP
Certified Public Accountants
Tampa, Florida
March 8, 2002
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund:
Under date of March 12, 2001, we reported on the balance sheet of PLM Equipment
Growth Fund as of December 31, 2000, and the related statements of income,
changes in partners' capital, and cash flows for each of the years in the
two-year period ended December 31, 2000, as contained in the 2001 annual report
to the partners. These financial statements and our report thereon are included
in the annual report on Form 10-K for the year ended December 31, 2001. In
connection with our audits of the aforementioned financial statements, we also
audited the related financial statement schedule for each of the years in the
two-year period ended December 31, 2000. This financial statement schedule is
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein for each of the years in
the two-year period ended December 31, 2000.
/s/ KPMG LLP
SAN FRANCISCO, CALIFORNIA
March 12, 2001
SCHEDULE II
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2001, 2000, and 1999
(in thousands of dollars)
Additions
Balance at Charged to Balance at
Beginning of Cost and Close of
Year Expense Deductions Year
---------------- ---------------- -------------- -------------
Year Ended December 31, 2001
Allowance for Doubtful Accounts $ 103 $ 23 $ (2) $ 124
======================================================================
Year Ended December 31, 2000
Allowance for Doubtful Accounts $ 36 $ 104 $ (37) $ 103
======================================================================
Year Ended December 31, 1999
Allowance for Doubtful Accounts $ 161 $ (114 ) $ (11 ) $ 36
======================================================================
PLM EQUIPMENT GROWTH FUND
INDEX OF EXHIBITS
Exhibit Page
4. Limited Partnership Agreement of Registrant *
4.1 Amendment to Limited Partnership Agreement of Registrant *
10.1 Management Agreement between Partnership and PLM Investment *
Management, Inc.
Financial Statement required under Regulation S-X Rule 3-09 42
99.1 Boeing 767
99.2 Clement Partnership
- ----------------------------------
* Incorporated by reference. See page 19 of this report.