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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 1-10813
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PLM EQUIPMENT GROWTH FUND III
(Exact name of registrant as specified in its charter)
California 68-0146197
(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 (Zip code)
executive offices)
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 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: 9,871,209
General Partnership units: 1
An index of exhibits filed with this Form 10-K is located at page 20.
Total number of pages in this report: 52.
PART I
ITEM 1. BUSINESS
(A) Background
In October 1987, 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 10,000,000 depositary units
(the units) in PLM Equipment Growth Fund III, a California limited partnership
(the Partnership, the Registrant, or EGF III). The Partnership's offering became
effective on March 21, 1988. FSI, as General Partner, owns a 5% 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 with the net proceeds of the initial partnership
offering, supplemented by debt financing and reinvestment of cash generated by
operations. 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, its
financial statements, internal and external credit ratings, and letters of
credit.
(2) to generate sufficient net operating cash flow 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 liquidation phase, proceeds from these sales, together with excess net
operating cash flows from operations (net cash provided by operating activities
plus distributions from an unconsolidated special-purpose entity (USPE)), are
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 11, 1989. The General
Partner contributed $100 for its 5% general partner interest in the Partnership.
On August 16, 1991, 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 delisted the Partnership's depositary units from the AMEX on
April 8, 1996. The last day for trading on the AMEX was March 22, 1996.
As of December 31, 2001, there were 9,871,210 depositary units outstanding.
Beginning in the eleventh year of operations of the Partnership, which commenced
on January 1, 2000, the General Partner began the dissolution and liquidation
the assets of the Partnership in an orderly fashion. The General Partner filed a
certificate of dissolution on behalf of the Partnership with the Secretary of
State for the State of California on December 22, 2000, and following completion
of the liquidation of the Partnership which is anticipated to occur in 2002, the
General Partner will file a certificate of cancellation.
Table 1, below, lists the equipment and the cost of the equipment in the
Partnership's portfolio, as of December 31, 2001 (in thousands of dollars):
TABLE 1
Units Type Manufacturer Cost
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Owned equipment held for operating leases:
708 Non-pressurized tank railcars Various $ 17,083
435 Pressurized tank railcars Various 10,797
110 Coal railcars Various 4,425
176 Intermodal trailers Various 3,036
119 Marine containers Various 2,390
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Total owned equipment held for operating leases $ 37,731 (1)
==============
(1) Includes equipment purchased with the proceeds from 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. All equipment was used equipment at the time of purchase,
except for 50 marine containers and 164 dry intermodal trailers.
Railcars are leased under operating leases with terms of six months 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 lessees of the equipment include: Canadian Pacific Railway Corporation,
Union Pacific Railraod Corporation, Trans Ocean Ltd., Terra Nitrogen, and
Kankakee, Beaverville & Southern Railroad (KBS).
(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 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 the equipment.
The short to mid-term nature of operating leases generally commands a higher
rental rate than 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 service (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), GATX General Electric Railcar
Services Corporation, and other investment programs that lease the same types of
equipment.
(D) Demand
The Partnership currently operates in three primary operating segments: railcar
leasing, trailer leasing, and marine container 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) Railcars
(a) 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.
(b) 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% 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
(c) Coal Railcars
Since most coal is shipped to domestic electric utilities, demand for coal is
greatly influenced by the demand for electricity, in particular summer air
conditioning, and to a lesser extent winter heating requirements. Coal
carloadings in the United States in 2001 increased by approximately 5% when
compared to 2000 levels.
The coal railcars owned by the Partnership were on a lease that expired on
December 31, 2001. The lessee has returned the cars, and they were disposed of
in 2002.
(2) Intermodal (Piggyback) Trailers
Intermodal trailers are used to transport a variety of dry goods by rail on
flatcars, usually for distances of over 400 miles. Over the past five years,
intermodal trailers have continued to be rapidly displaced by domestic
containers as the preferred method of transport for such goods. This
displacement occurs because railroads offer approximately 20% lower freight
rates on domestic containers compared to trailer rates. During 2001, demand for
intermodal trailers was much more volatile than historic norms. Unusually low
demand occurred over the second half of the year due to a rapidly slowing
economy and low rail freight rates for 53-foot domestic containers. Due to the
decline in demand which occurred over the latter half of 2001, shipments for the
year within the intermodal trailer market declined approximately 10% compared to
the prior year. Average utilization of the entire US intermodal fleet rose from
73% in 1998 to 77% in 1999, and then declined to 75% in 2000 and further
declined to a record low of 63% in 2001.
The General Partner continued its aggressive marketing program in a bid to
attract new customers for the Partnership's intermodal trailers during 2001.
Even with these efforts, average utilization of the Partnership's intermodal
trailers for the year 2001 dropped 8% to approximately 73%, still 10% above the
national average.
The trend towards using domestic containers instead of intermodal trailers is
expected to accelerate in the future. Overall, intermodal trailer shipments are
forecast to decline by 10% to 15% in 2002, compared to 2001, due to the
anticipated continued weakness of the overall economy. As such, the nationwide
supply of intermodal trailers is expected to have approximately 25,000 units in
surplus for 2002. Maintenance costs have increased approximately 10% from 2000
due to improper repair methods performed by the railroads' vendors and billed to
owners. For the Partnership's intermodal fleet, the General Partner will
continue to seek to expand its customer base while minimizing trailer downtime
at repair shops and terminals. Significant efforts will continue to be
undertaken to reduce maintenance costs and cartage costs.
(3) 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.
(E) Government Regulations
The use, maintenance, and ownership of equipment are regulated by federal,
state, local, or foreign government 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 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 to the stratospheric ozone layer and which are
used extensively as refrigerants in refrigerated marine cargo containers.
(2) 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. This does 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 1,143 of this type of railcars. As of December 31, 2001, 103 have been
inspected and no significant defects have been discovered.
As of December 31, 2001, the Partnership was in compliance with the above
government regulations. Typically, costs related to extensive equipment
modifications 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. As of December 31, 2001, the Partnership owned a portfolio of
transportation and related equipment as described in Item 1, Table 1. The
Partnership acquired equipment with the proceeds of the Partnership offering of
$199.7 million, proceeds from debt financing of $41.9 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 against two defaulting Indian airline lessees 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
contracts. The Partnership has repossessed all of its property previously leased
to these airlines, causing one of the airline lessees to cease operations. In
response to the Partnership's collection efforts, the airline lessees filed
counter-claims 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, an arbitration between one India lessee and the Partnership took
place and the Partnership was awarded a settlement. The General Partner and the
lessee are in the process of negotiating the settlement in a manner that
benefits all parties involved. The General Partner decided not to accrue the
amount of the settlement because collection of the settlement is remote. The
General Partner will continue to try to collect the full amount of the
settlement.
During 2001, the General Partner has decided to minimize its collection efforts
from the other India lessee in order to save the Partnership from incurring
additional expenses associated with trying to collect from a lessee that has a
limited ability to pay.
The Partnership is involved as plaintiff or defendant in various 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.
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 terms of the partnership agreement, the General Partner is
entitled to a 5% 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 8,512 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 GFZPZ.
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 depositary 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 depositary 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 weighted-average depositary unit amounts)
2001 2000 1999 1998 1997
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Operating Results:
Total revenues $ 11,484 $ 21,010 $ 17,494 $ 22,507 $ 28,592
Net gain on disposition
of equipment 4,139 9,707 2,197 3,808 5,629
Equity in net income (loss) of uncon-
solidated special-purpose entity (10) 918 1,413 49 857
Net income 5,278 11,898 4,039 2,917 1,937
At year-end:
Total assets $ 14,482 $ 10,037 $ 18,690 $ 35,512 $ 56,395
Note payable -- -- 7,458 18,540 29,290
Total liabilities 511 721 10,362 21,219 34,397
Cash distribution $ 623 $ 10,910 $ 7,793 $ 10,394 $ 10,391
Cash distribution representing
a return of capital to the limited
Partners $ -- $ -- $ 3,754 $ 7,477 $ 8,454
Per weighted-average depositary unit
Net income $ 0.53 $ 1.15 (1) $ 0.37 (1) $ 0.24 (1) $ 0.14 (1)
Cash distribution $ 0.06 $ 1.05 $ 0.75 $ 1.00 $ 1.00
Cash distribution representing
a return of capital to the limited
Partners $ -- $ -- $ 0.38 $ 0.76 $ 0.86
__________________________________
(1) After an increase of income of $0.2 million ($0.03 per weighted-average
depositary unit) in 2001 and $0.1 million ($0.01 per weighted-average
depositary unit) in 2000, representing allocations from the General
Partner. After reduction of income of $0.2 million ($0.02 per
weighted-average depositary unit) in 1999, $0.4 million ($0.04 per
weighted-average depositary unit) in 1998 and 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 III
(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 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 or repricing activity in 2001 across its railcar,
trailer, and marine container portfolio.
(a) Railcars: The relatively short duration of most leases exposes the
railcars to considerable re-leasing activity. As of December 31, 2001, the
Partnership had 210 railcars off-lease. Additional railcar leases will expire in
2002. The Partnership's lease revenue declined approximately $0.2 million from
2000 to 2001 due to the disposition of railcars during 2000 and 2001.
(b) Trailers: The Partnership's trailer portfolio operates with short-line
railroad systems. The relatively short duration of most leases in these
operations exposes the trailers to considerable re-leasing activity. The
Partnership's lease revenue decreased approximately $0.2 million from 2000 to
2001 primarily due to the disposition of trailers in 2000 and 2001.
(c) Marine containers: The Partnership's remaining marine container
portfolio operates in utilization-based leasing pools and, as such, is exposed
to considerable repricing activity. The Partnership's marine container
contribution declined approximately $0.1 million from 2000 to 2001 primarily due
to the disposition of marine containers in 2000 and 2001.
(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
a reduction of contribution to the Partnership. During the year ended December
31, 2001, the Partnership sold or disposed of aircraft, railcars, trailers, and
marine containers, with an aggregate net book value of $1.7 million, for
proceeds of $5.8 million.
(3) Equipment Valuation
In accordance with Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) 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 are less than the carrying value of the equipment, a loss
on revaluation is recorded. A $0.2 million loss on revaluation was recorded
during 2000. No reductions to the equipment carrying values were required for
the years ended December 31, 2001 or 1999 or to partially owned USPE equipment
in 2001, 2000, or 1999
In October 2001, FASB 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.
(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 indebtedness. The Partnership relies on operating
cash flow to meet its operating obligations.
For the year ended December 31, 2001, the Partnership generated $3.2 million in
cash to meet its operating obligations, and make distributions (total in 2001 of
$0.6 million) to the partners.
During the year ended December 31, 2001, the Partnership sold or disposed of
aircraft, railcars, trailers, and marine containers, with an aggregate net book
value of $1.7 million in 2001, for proceeds of $5.8 million.
Accounts receivable decreased $0.2 million during 2001 due to the decrease in
lease revenue caused by the reduction in the size of the equipment portfolio.
Accounts payable and accrued expenses decreased $46,000 during the year ended
December 31, 2001 due to the decrease in payments to vendors resulting from the
reduction in the size of the equipment portfolio.
The Partnership's lessee deposits and reserve for repairs decreased by $0.2
million during the year ended December 31, 2001. A $0.1 million decrease
resulted from the return of security deposits to the buyer who purchased an
aircraft during 2001. A $0.1 million decrease resulted from lower prepaid
aircraft revenue due to the sale of the aircraft.
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 our
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 signifigant judgments and estimates used in the preparation of our
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 in consideration of 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,
equipment operating 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 December 31,
2001 2000
-------------------------------------
Railcars $ 4,493 $ 4,572
Trailers 192 352
Aircraft 81 3,403
Marine containers 25 76
Railcars: Railcars lease revenues and direct expenses were $6.4 million and $1.9
million, respectively, for the year ended December 31, 2001, compared to $6.6
million and $2.0 million, respectively, during the same period of 2000. The
decrease in railcar contribution in the year ended December 31, 2001 was due to
a decrease in railcar utilization in 2001, compared to 2000.
Trailers: Trailer lease revenues and direct expenses were $0.4 million and $0.2
million, respectively, for 2001, compared to $0.6 million and $0.2 million,
respectively, during 2000. The number of trailers owned by the Partnership has
been declining due to dispositions. The result of this declining fleet is a
decrease in trailer contribution.
Aircraft: Aircraft lease revenues and direct expenses were $0.2 million and $0.1
million, respectively, for 2001, compared to $3.9 million and $0.5 million,
respectively, during 2000. The $3.3 million decrease in aircraft contribution
during 2001 compared to 2000 was due to the sale of the Partnership's' aircraft
during 2001.
Marine containers: Marine container lease revenues and direct expenses were
$26,000 and $1,000, respectively, for 2001, compared to $0.1 million and $4,000,
respectively for 2000. The number of marine containers owned by the Partnership
has been declining due to dispositions. The result of this declining fleet is a
decrease in marine container contribution.
(b) Indirect Operating Expenses Related to Owned Equipment Operations
Total indirect expenses of $3.9 million for the year ended December 31, 2001
decreased from $7.3 million for the same period of 2000. Significant variances
are explained as follows:
(i) A decrease of $2.9 million in depreciation and amortization expenses
from 2000 levels due to the disposition of Partnership assets during 2001 and
2000.
(ii) A decrease of $0.3 million in interest expense was due to the
repayment of the Partnership's debt during 2000.
(iii) Loss on revaluation of equipment decreased $0.2 million during 2001
compared to 2000. During 2000, the Partnership reduced the carrying value of
trailers to their estimated net realizable value. There was no revaluation of
equipment required during 2001.
(iv) A decrease of $0.2 million in management fees to affiliate from 2000
levels was due to lower lease revenues during 2001, compared to 2000.
(v) A decrease of $47,000 in general and administrative expenses was due a
decrease of $0.1 million in computer and other allocated expenses. The decrease
was offset by an increase of $50,000 for professional services required by the
Partnership.
(vi) A increase of $0.2 million for the provision for bad debts expense in
2001 was due to a $0.1 million increase due to the General Partner's evaluation
of the collectability of receivables due from certain lessees. An additional
$0.1 million increase was due to the collection of an accounts receivable in
2000 that had previously been written off as a bad debt. A similar event did not
occur in 2001.
(c) Net Gain on Disposition of Owned Equipment
Net gain on the disposition of equipment for the year ended December 31, 2001
total $4.1 million, and resulted from the sale of aircraft, marine containers,
trailers, and railcars with an aggregate net book value of $1.7 million for
proceeds of $5.8 million. Net gain on disposition of equipment for the year
ended December 31, 2000 totaled $9.7 million, which resulted from the sale of
aircraft, marine containers, trailers, and railcars, with an aggregate net book
value of $2.8 million, for proceeds of $12.5 million.
(d) Equity in Net Income (Loss) of an Unconsolidated Special-Purpose Entity
(USPE)
Equity in net income (loss) of an USPE 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 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,
2001 2000
-------------------------------------
Aircraft, aircraft engines, and rotables $ -- $ 23
Marine vessel (10) 895
-------------------------------------
Equity in net income (loss) of an USPE $ (10) $ 918
=====================================
Aircraft, aircraft engines, and rotables: As of December 31, 2001 and 2000, the
Partnership had no remaining interest in an entity that owned aircraft, aircraft
engines, or rotables. The Partnership had no revenues or expenses in an USPE
that owned aircraft, aircraft engines, or rotables in the year ended December
31, 2001. The Partnership's share of aircraft revenues and expenses were $23,000
and $-0-, respectively, for the year ended December 31, 2000. The $23,000 of
aircraft revenues for the year ended December 31, 2000 represented interest
income earned on accounts receivable.
Marine vessel: As of December 31, 2001 and 2000, the Partnership had no
remaining interest in an entity that owned marine vessels. During the year ended
December 31, 2001, insurance settlement proceeds of $6,000 was offset by direct
expenses, and administrative expenses of $16,000, compared to lease revenues of
$0.7 million and the gain of $1.1 million from the sale of the Partnership's
interest in an entity that owned a marine vessel being offset by depreciation
expense, direct expenses, and administrative expenses of $0.9 million for 2000.
The decrease in lease revenues and expenses of marine vessels for 2001 compared
to 2000 was due to the sale of the Partnership's interest in an entity that
owned a marine vessel during 2000.
(e) Net Income
As a result of the foregoing, the Partnership had net income of $5.3 million for
the year ended December 31, 2001, compared to net income of $11.9 million in the
same period of 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 $0.6 million to the limited partners or
$0.06 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, owns 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 an 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 for the year ended December 31, 2000 when 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
-------------------------------------
Railcars $ 4,572 $ 5,100
Aircraft 3,403 4,977
Trailers 352 512
Marine containers 76 118
Marine vessel -- 660
Railcars: Railcar lease revenues and direct expenses were $6.6 million and $2.0
million, respectively, for 2000, compared to $6.9 million and $1.8 million,
respectively, during 1999. Revenue declined as a result of lower lease rates.
The increase in direct expenses of $0.2 million was a result of more repairs
being required on rail equipment in 2000 than was needed during 1999.
Aircraft: Aircraft lease revenues and direct expenses were $3.9 million and $0.5
million, respectively, for 2000, compared to $5.6 million and $0.7 million,
respectively, during 1999. The decrease in lease revenues and direct expenses
was due to the sale of a total of four aircraft during 2000 and 1999.
Trailers: Trailer lease revenues and direct expenses were $0.6 million and $0.2
million, respectively, for 2000, compared to $0.7 million and $0.2 million,
respectively, during 1999. The number of trailers owned by the Partnership has
been declining due to dispositions. The result of this declining fleet has been
a decrease in trailer contribution.
Marine containers: Marine containers lease revenues and direct expenses were
$0.1 million and $4,000, respectively in 2000 compared to $0.1 million and
$2,000, respectively, in 1999. The number of containers owned by the Partnership
has been declining due to dispositions. The result of this declining fleet has
been a decrease in containers contribution.
Marine vessel: Marine vessel lease revenues and direct expenses were zero for
2000, compared to $1.5 million and $0.8 million, respectively, for 1999.
The September 30, 1999 Amendment that changed the accounting method of majority
held equipment from the consolidation method of accounting to the equity method
of accounting impacted the reporting of lease revenues and direct expenses of
one marine vessel. As a result of the Amendment, during the year ended December
31, 2000, lease revenues decreased $1.5 million and direct expenses decreased
$0.8 million when compared to 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 of $7.3 million for the year ended December 31, 2000
decreased from $11.4 million for 1999. Significant variances are explained as
follows:
(i) A decrease of $2.9 million in depreciation and amortization expense
from 1999 levels resulted from an approximately $2.3 million decrease due to the
sale of certain assets during 2000 and 1999, and a decrease of $0.6 million was
the result of the Amendment which changed the accounting method used for
majority held equipment from the consolidation method of accounting to the
equity method of accounting.
(ii)A decrease of $0.7 million in interest expense was due to the repayment
of the Partnership's debt in 2000.
(iii) Bad debt expense decreased $0.4 million in 2000 compared to 1999. A
$0.3 million decrease was due to the General Partner's evaluation of the
collectability of receivables due from certain lessees, and a $0.1 million
decrease was due to collection of $0.1 million from unpaid invoices in 2000 that
had previously been reserved for as bad debts. A similar recovery did not occur
in 1999.
(iv)A decrease of $0.2 million in management fees to affiliate was due to
lower lease revenues in 2000, compared to 1999.
(v) A decrease of $0.1 million in general and administrative expenses from
1999 levels was due to the reduction of the size of the Partnership's equipment
portfolio.
(vi)An increase of $0.2 million in revaluation of equipment was due to the
loss on revaluation of trailer equipment in 2000. A similar loss did not occur
in 1999.
(d) Net Gain on Disposition of Owned Equipment
Net gain on disposition of equipment was $9.7 million for the year ended
December 31, 2000 resulting from the disposition of marine containers, trailers,
railcars, and aircraft with an aggregate net book value of $2.8 million, for
proceeds of $12.5 million. The net gain on disposition of equipment was $2.2
million for the same period of 1999 resulting from the disposition of marine
containers, trailers, railcars, and an aircraft with an aggregate net book value
of $1.6 million, for proceeds of $3.8 million.
(e) Equity in Net Income (Loss) of USPE
Equity in net income (loss) of an USPE represents the Partnership's share of the
net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method (see Note 4 to the financial statements). This
entity was single purpose and did not have any 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
-------------------------------------
Marine vessel $ 895 $ (64)
Aircraft, aircraft engines, and rotables 23 1,477
-------------------------------------
Equity in net income of an USPE $ 918 $ 1,413
=====================================
Marine vessel: The Partnership's share of revenues and expenses of marine
vessels was $1.8 million, and $0.9 million, respectively, for 2000 compared to
$0.2 million and $0.3 million, respectively, for 1999. During the third quarter
of 2000, the Partnership's 56% interest in an entity owing a marine vessel was
sold for a gain of $1.1 million.
An increase in marine vessel revenues of $1.1 million was due to the gain from
the sale. An increase in marine vessel lease revenues of $0.5 million and
depreciation expense, direct expenses, and administrative expenses of $0.6
million during the year ended December 31, 2000, was caused by the September 30,
1999 Amendment that changed the accounting method of majority held equipment
from the consolidation method of accounting to the equity method of accounting
for one marine vessel.
The lease revenues and depreciation expense, direct expenses, and administrative
expenses for the majority owned marine vessel were reported under the
consolidation method of accounting under Owned Equipment Operations during the
first nine months of 1999. The lease revenues and depreciation expense, direct
expenses, and administrative expenses for the majority owned marine vessel were
reported under the equity method of accounting under USPE operations during the
fourth quarter of 1999 and all of 2000.
Aircraft, aircraft engines, and rotables: As of December 31, 2000, the
Partnership had no remaining interest in an entity owning aircraft, aircraft
engines, or rotables. The interest in the trust that owned this equipment was
sold in 1999, for a gain of $1.6 million. The Partnership's share of aircraft,
aircraft engines, and rotables lease revenue and expenses of $23,000 and zero
for 2000 compared to zero and $0.1 million respectively, for 1999. The $23,000
of aircraft revenues for 2000 represented interest income earned on accounts
receivable. The decrease in revenue and expenses is due to the sale of the
aircraft, aircraft engines, and rotables in the first quarter of 1999.
(f) Net Income
As a result of the foregoing, the Partnership's net income for 2000 was $11.9
million, compared to net income of $4.0 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 $10.4 million to
the limited partners, or $1.05 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 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 generally 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's owned equipment on lease to the U.S. domiciled lessees
consisted of railcars and trailers. During 2001, U.S. lease revenues accounted
for 37% of the lease revenues generated by wholly-and jointly-owned equipment.
U.S. operations resulted in a net loss of $0.4 million.
The Partnership's owned equipment on lease to Canadian-domiciled lessees
consisted of an owned aircraft and railcars. Canadian lease revenues accounted
for 62% of total lease revenues generated by wholly-and jointly-owned equipment.
Canadian operations generated net income of $2.6 million including the gain from
this region 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 that may affect 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 lessees' 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 that may affect 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 any 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 1,143
of this type of railcars. As of December 31, 2001, 103 have been inspected with
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 represents a reduction in the size of
the equipment portfolio and may result in a reduction of contribution to the
Partnership.
The Partnership, in accordance with the limited partnership agreement, entered
its liquidation phase on January 1, 2000 and has commenced an orderly
liquidation of the Partnership assets. The General Partner filed a certificate
of dissolution on behalf of the Partnership with the Secretary of State for the
State of California on December 22, 2000, and following completion of the
liquidation of the Partnership which is anticipated to occur in 2001, the
General Partner will file a certificate of cancellation.
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, 62% of the Partnership's total lease revenues came from non-United
States domiciled lessees. Most of the leases require payment in United States
(US) currency. If these lessees' currency devalues against the US dollar, the
lessees could potentially encounter difficulty in making the US dollar
denominated lease payments.
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, 2000 and the subsequent interim period 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 generally entitled to a 5% 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 officer or
director of the General Partner and its affiliates own any depositary units
of the Partnership as of December 31, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others
During 2001, management fees to IMI were $0.5 million. During 2001, the
Partnership reimbursed FSI or its affiliates $0.4 million for
administrative services and data processing expenses performed on behalf of
the Partnership.
(This space is intentionally left blank)
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT 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 this
Annual Report on Form 10-K:
a. TAP Trust
(B) Reports on Form 8-K
None.
(C) Financial Statement Schedule
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 required is included in the
financial statements and notes thereto.
(D) Exhibits
4. Limited Partnership Agreement of Partnership. Incorporated by
reference to the Partnership's Registration Statement on Form S-1
(Reg. No. 33-18104), which became effective with the Securities and
Exchange Commission on March 25, 1988.
4.1 Amendment, dated November 18, 1991, to Limited Partnership Agreement
of Partnership. Incorporated by reference to the Partnership's Annual
Report on Form 10-K dated December 31, 1991 filed with the Securities
and Exchange Commission on March 30, 1992.
10.1 Management Agreement between Partnership and PLM Investment
Management, Inc. Incorporated by reference to the Partnership's
Registration Statement on Form S-1 (Reg. No. 33-18104), which became
effective with the Securities and Exchange Commission on March 25,
1988.
Financial Statements required under Regulation S-X Rule 3-09:
99.1 TAP Trust
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.
Date: March 26, 2002 PLM EQUIPMENT GROWTH FUND III
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 III
(A Limited Partnership)
INDEX TO FINANCIAL STATEMENTS
(Item 14(a))
Page
Independent auditors' reports 23-24
Balance sheets as of December 31, 2001 and 2000 25
Statements of income for the years ended December 31,
2001, 2000, and 1999 26
Statements of changes in partners' capital for the years
ended December 31, 2001, 2000, and 1999 27
Statements of cash flows for the years ended December 31,
2001, 2000, and 1999 28
Notes to financial statements 29-39
Independent auditors' reports on financial statement schedule 40-41
Schedule II Valuation and Qualifying Accounts 42
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund III:
We have audited the accompanying balance sheet of PLM Equipment Growth Fund III
(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 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, the Partnership, in
accordance with the limited partnership agreement, entered its liquidation phase
on January 1, 2000 and has commenced an orderly liquidation of the Partnership
assets. During the liquidation phase, the Partnership's assets will continue to
be reported at the lower of carrying amount or fair value less cost to sell. The
General Partner filed a certificate of dissolution on behalf of the Partnership
with the Secretary of State for the State of California on December 31, 2000,
and following completion of the liquidation of the Partnership that is
anticipated to occur in 2002, will file a certificate of cancellation. The
General Partner is currently marketing all of the Partnership's assets for sale.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Tampa, Florida
March 8, 2002
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund III:
We have audited the accompanying balance sheet of PLM Equipment Growth Fund III
("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
III, in accordance with the limited partnership agreement, entered its
liquidation phase on January 1, 2000 and has commenced an orderly liquidation of
the Partnership assets. The General Partner filed a certificate of dissolution
on behalf of the Partnership with the Secretary of State for the State of
California on December 22, 2000, and following completion of the liquidation of
the Partnership, which is anticipated to occur in 2001, the General Partner will
file a certificate of cancellation.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the PLM Equipment Growth Fund
III 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 2, 2001
Plm Equipment Growth Fund Iii
(A Limited Partnership)
Balance Sheets
December 31,
(In Thousands of Dollars, Except Unit Amounts)
2001 2000
----------------------------------
Assets
Equipment held for operating leases, at cost $ 37,731 $ 40,028
Less accumulated depreciation (33,833) (34,361)
---------------------------------
3,898 5,667
Equipment held for sale -- 1,703
---------------------------------
Net equipment 3,898 7,370
Cash and cash equivalents 10,141 1,832
Restricted cash -- 125
Accounts receivable, net of allowance for doubtful
accounts of $518 in 2001 and $455 in 2000 420 591
Investment in an unconsolidated special-purpose entity -- 76
Prepaid expenses and other assets 23 43
---------------------------------
Total assets $ 14,482 $ 10,037
=================================
Liabilities and Partners' Capital
Liabilities
Accounts payable and accrued expenses $ 416 $ 462
Due to affiliates 66 72
Lessee deposits and reserve for repairs 29 187
---------------------------------
Total liabilities 511 721
---------------------------------
Commitments and contingencies
Partners' capital
Limited partners (9,871,210 depositary units
as of December 31, 2001 and 2000) 13,971 9,316
General Partner -- --
---------------------------------
Total partners' capital 13,971 9,316
---------------------------------
Total liabilities and partners' capital $ 14,482 $ 10,037
=================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND III
(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 $ 7,027 $ 11,098 $ 14,852
Interest and other income 318 205 445
Net gain on disposition of equipment 4,139 9,707 2,197
-------------------------------------------
Total revenues 11,484 21,010 17,494
-------------------------------------------
EXPENSES
Depreciation and amortization 1,891 4,773 7,628
Repairs and maintenance 2,169 2,564 2,619
Equipment operating expenses 36 33 668
Insurance expenses 140 132 237
Management fees to affiliate 463 634 807
Interest expense -- 306 1,021
General and administrative expenses to affiliates 384 410 504
Other general and administrative expenses 1,049 1,070 1,098
Provision for (recovery of) bad debts 64 (94) 308
Revaluation of equipment -- 202 --
-------------------------------------------
Total expenses 6,196 10,030 14,890
-------------------------------------------
Minority interests -- -- 22
-------------------------------------------
Equity in net (loss) income of an unconsolidated
special-purpose entity (10) 918 1,413
-------------------------------------------
Net income $ 5,278 $ 11,898 $ 4,039
===========================================
PARTNERS' SHARE OF NET INCOME
Limited partners $ 5,247 $ 11,353 $ 3,649
General Partner 31 545 390
-------------------------------------------
Total $ 5,278 $ 11,898 $ 4,039
===========================================
Limited partners' net income per weighted-average
depositary unit $ 0.53 $ 1.15 $ 0.37
===========================================
Cash distribution $ 623 $ 10,910 $ 7,793
===========================================
Cash distribution per weighted-average depositary unit $ 0.06 $ 1.05 $ 0.75
===========================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND III
(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 $ 12,082 $ -- $ 12,082
Net income 3,649 390 4,039
Cash distribution (7,403) (390) (7,793)
--------------------------------------------------
Partners' capital as of December 31, 1999 8,328 -- 8,328
Net income 11,353 545 11,898
Cash distribution (10,365) (545) (10,910)
--------------------------------------------------
Partners' capital as of December 31, 2000 9,316 -- 9,316
Net income 5,247 31 5,278
Cash distribution (592) (31) (623)
--------------------------------------------------
Partners' capital as of December 31, 2001 $ 13,971 $ -- $ 13,971
==================================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS OF DOLLARS)
2001 2000 1999
---------------------------------------------
OPERATING ACTIVITIES
Net income $ 5,278 $ 11,898 $ 4,039
Adjustments to reconcile net income
To net cash provided by (used in) operating activities:
Depreciation and amortization 1,891 4,773 7,628
Net gain on disposition of equipment (4,139) (9,707) (2,197)
Revaluation of equipment -- 202 --
Equity in net loss (income) from a unconsolidated special-
purpose entity 10 (918) (1,413)
Changes in operating assets and liabilities:
Accounts receivable 171 136 210
Restricted cash 125 (125) --
Prepaid expenses and other assets 20 17 (33)
Accounts payable and accrued expenses (46) (324) (482)
Due to affiliates (6) (27) (6)
Lessee deposits and reserves for repairs (158) (1,232) 478
Minority interests -- -- (224)
--------------------------------------------
Net cash provided by operating activities 3,146 4,693 8,000
--------------------------------------------
INVESTING ACTIVITIES
Due to affiliates -- -- (36)
Payment for capitalized repairs (118) (231) (26)
Proceeds from disposition of equipment 5,838 12,512 3,790
Liquidating distribution from an unconsolidated
special-purpose entity -- 3,218 3,548
Distribution from an unconsolidated special-purpose entity 66 122 56
--------------------------------------------
Net cash provided by investing activities 5,786 15,621 7,332
--------------------------------------------
FINANCING ACTIVITIES
Net receipts (repayments to) from affiliate -- (600) 600
Principal payments on note payable -- (7,458) (11,082)
Cash distribution paid to limited partners (592) (10,365) (7,403)
Cash distribution paid to General Partner (31) (545) (390)
--------------------------------------------
Net cash used in financing activities (623) (18,968) (18,275)
--------------------------------------------
Net increase (decrease) in cash and cash equivalents 8,309 1,346 (2,943)
Cash and cash equivalents at beginning of year 1,832 486 3,429
--------------------------------------------
Cash and cash equivalents at end of year $ 10,141 $ 1,832 $ 486
============================================
SUPPLEMENTAL INFORMATION
Interest paid $ -- $ 306 $ 1,021
============================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
ORGANIZATION
PLM Equipment Growth Fund III, a California limited partnership (the
Partnership), was formed on October 15, 1987. The Partnership engages primarily
in the business of owning, leasing, or otherwise investing in predominately 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 the limited partnership agreement, entered
its liquidation phase on January 1, 2000 and has commenced an orderly
liquidation of the Partnership assets. During the liquidation phase, the
Partnership's assets will continue to be reported at the lower of carrying
amount or fair value less cost to sell. The General Partner filed a certificate
of dissolution on behalf of the Partnership with the Secretary of State for the
State of California on December 31, 2000, and following completion of the
liquidation of the Partnership that is anticipated to occur in 2002, will file a
certificate of cancellation. The General Partner is currently marketing all of
the Partnership's assets for sale.
FSI manages the affairs of the Partnership. The cash distributions of the
Partnership are generally allocated 95% to the limited partners and 5% 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 also
entitled to a subordinated incentive fee equal to 7.5% 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
Unites 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" (SFAS No. 13). Lease
origination costs are capitalized and amortized over the term of the lease.
Periodically, the Partnership leases equipment with lease terms that qualify for
direct finance lease classification, as required by SFAS No. 13.
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION (continued)
DEPRECIATION AND AMORTIZATION
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. Certain aircraft are
depreciated under the double-declining balance method over the lease term which
approximates the asset's economic life. 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. Lease negotiation fees are amortized over the initial equipment
lease term. 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 less any reductions to the
carrying value as required by SFAS No. 121 "Accounting for the impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121).
Equipment held for sale is stated at the lower of the equipment's depreciated
cost of fair value, less cost to sell, and is subject to a pending contract for
sale.
In accordance with 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 are less than
the carrying value of the equipment, a loss on revaluation is recorded. A loss
on revaluation of $0.2 million was recorded during 2000. No reductions to the
carrying values of equipment were required during 2001 or 1999, or partially
owned equipment in 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 AN UNCONSOLIDATED SPECIAL-PURPOSE ENTITY
As of December 31, 2001, the Partnership's had no remaining interests in an
unconsolidated special-purpose entity (USPE) that owned transportation
equipment. As of December 31, 2000, the Partnership owned a majority interest in
one such entity. Prior to September 30, 1999, the Partnership controlled the
management of this entity and thus it was consolidated into the Partnership's
financial statements. On September 30, 1999, the corporate-by-laws of this
entity were changed to require a unanimous vote by all owners on major business
decisions. Thus, from September 30, 1999 forward, the Partnership no longer
controlled the management of this entity, and the accounting method for the
entity was changed from the consolidation method to the equity method.
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION (continued)
Investment in an Unconsolidated Special-Purpose Entity - continued
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 an USPE is managed by IMI. The Partnership's equity interest in the
net income (loss) of an USPE 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
Repair and maintenance costs for railcars and trailers are usually the
obligation of the Partnership. Maintenance costs for the marine containers are
the obligation of the lessee. If they are not covered by the lessee, they are
charged against operations as incurred.
Net Income and Distributions Per Depositary Unit
Cash distributions are allocated 95% to the limited partners and 5% to the
General Partner and may include amounts in excess of net income. Special
allocation of income are made to (from) the General Partner equal to the
deficiency (equity) balance, if any, in the capital account of the General
Partner. The limited partners' net income (loss) is allocated among the limited
partners based on the number of depositary units owned by each limited partner
and on the number of days of the year each limited partner is in the
Partnership. In 2001, the General Partner specially allocated the limited
partners $0.2 million in income to cause its capital account to be zero ($0.1
million in 2000). In 1999, the General Partner was allocated $0.2 million in
excess of its pro rata ownership share.
Cash distributions are recorded when paid. Cash distributions to the limited
partners of $5.0 million, $-0-, and $-0-, for the years ended December 31, 2001,
2000, and 1999, respectively, were paid 2002, 2001 and 2000, respectively.
Cash distributions to investors in excess of net income are considered a return
of capital. Cash distributions to the limited partners of $3.8 million in 1999
was deemed to be a return of capital. None of the cash distributions in 2001 or
2000 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 9,871,210.
CASH AND CASH EQUIVALENTS
The Partnership considers highly liquid investments that are readily convertible
into 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 net income was equal to comprehensive income for the years
ended December 31, 2001, 2000, and 1999.
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
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 interest in equipment owned by the
USPE equal to the greater of (a) the fees that would be charged by an
independent third party for similar services for similar equipment or (b) the
sum of (i) 5% of the gross lease revenues attributable to equipment that is
subject to operating leases, (ii) 2% of the gross lease revenues attributable to
equipment that is subject to full payout net leases, and (iii) 7% of the gross
lease revenues attributable to equipment for which IMI provides both management
and additional services relating to the continued and active operation of
program equipment, such as on-going marketing and re-leasing of equipment,
hiring or arranging for the hiring of crew or operating personnel for equipment,
and similar services. The Partnership's management fee in 2001 was less than an
independent third party management fee charged for similar services for similar
equipment. The Partnership reimbursed FSI and its affiliates $0.4 million, $0.4
million, and $0.5 million in 2001, 2000 and 1999, respectively, for data
processing expenses and administrative services performed on behalf of the
Partnership.
The Partnership's proportional share of USPE management fees to affiliate were
$-0-, $36,000, and $0.1 million during 2001, 2000, and 1999, respectively, and
the Partnership's proportional share of administrative and data processing
expenses to affiliate were $-0-, $10,000, and $16,000 during 2001, 2000, and
1999, respectively. Both of these affiliate expenses reduce 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).
During 2000, the Partnership borrowed a total of $4.6 million from the General
Partner in addition to the $0.6 million outstanding on December 31, 1999. The
General Partner charged the Partnership market interest rates. Total interest to
the General Partner was $0.1 million. All borrowings were repaid by December 31,
2000.
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 $ 32,305 $ 33,370
Trailers 3,036 3,428
Marine containers 2,390 3,230
--------------------------------
37,731 40,028
Less accumulated depreciation (33,833) (34,361)
--------------------------------
3,898 5,667
Equipment Held for Sale -- 1,703
--------------------------------
Net equipment $ 3,898 $ 7,370
================================
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. Rental
revenues for trailers are based on a per-diem lease in the free running
interchange with the railroads. Rents for railcars are based on fixed rates.
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
3. EQUIPMENT - continued
As of December 31, 2001, all owned equipment in the Partnership portfolio was on
lease except for 100 railcars, with an aggregate net book value of $0.3 million.
As of December 31, 2000, all owned equipment in the Partnership portfolio was on
lease except for 88 railcars, 25 trailers, and aircraft, that were held for sale
at December 31, 2001, with an aggregate net book value of $0.6 million.
During 2001, the General Partnership disposed of aircraft, marine containers,
trailers, and railcars owned by the Partnership, with an aggregate net book
value of $1.7 million, for proceeds of $5.8 million. A Boeing 737-200 Stage II
commercial aircraft and a Dash 8-300 Stage II commuter aircraft, subject to a
pending contract for sale, were held for sale as of December 31, 2000 at the
lower of the equipment's depreciated cost or fair value, less cost to sell.
During 2000, the Partnership disposed of marine containers, trailers, railcars,
and aircraft with an aggregate net book value of $2.8 million for proceeds of
$12.5 million.
During 2000, there was a $0.2 million reduction to the carrying value of trailer
equipment. There were no reductions to the carrying values of equipment in 2001
or 1999.
All owned equipment on lease is being accounted for as operating leases. Future
minimum rents under noncancelable operating leases as of December 31, 2001
during each of the next five years are $4.6 million in 2002, $3.2 million in
2003, $1.7 million in 2004, $0.9 million in 2005, $0.2 million in 2006 and $-0-
thereafter. Per diem and short-term rentals consisting of utilization rate lease
payments included in revenue amounted to approximately $0.4 million, $0.2
million, and $0.3 million in 2001, 2000, and 1999, respectively.
4. INVESTMENT IN AN UNCONSOLIDATED SPECIAL PURPOSE ENTITY
The Partnership owned equipment jointly with affiliated programs through an
investment in an unconsolidated special purpose entity. This was a single
purpose entity that did not have any debt.
In September 1999, the General Partner amended the corporate-by-laws of certain
USPEs in which the Partnership, or any affiliated program, owns an interest
greater than 50%. The amendment to the corporate-by-laws provided that all
decisions regarding the acquisition and disposition of the 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. 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 investment in an USPE. Accordingly, as
of December 31, 2000, the balance sheet reflects the investment in an USPE on an
equity basis.
As of December 31, 2001, the Partnership owned no interest in an USPE. As of
December 31, 2000, the Partnership's remaining interest in the entity that owned
a marine vessel represents $0.1 million of receivables from the former lessee.
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT IN AN UNCONSOLIDATED SPECIAL PURPOSE ENTITY - continued
The following summarizes the financial information for the special purpose
entity and the Partnership's interest therein as of and for the years ended
December 31, (in thousands of dollars):
2001 2000 1999
--------------------------- --------------------------- -------------------------
Net Net Net
Total Interest Total Interest Total Interest
USPE of USPE Of USPE of
Partnership Partnership Partnership
------------ ------------ ------------ ------------ ----------- ------------
Net investments $ -- $ -- $ 135 $ 76 $ 4,881 $ 2,498
Lease revenues -- -- 1,273 713 1,910 243
Net income (loss) (18) (10) 1,628 918 8,902 1,413
The net investment in an USPE consisted of a 56% interest in a trust owning a
bulk-carrier marine vessel (and related assets and liabilities) totaling $0.1
million as of December 31, 2000. This vessel was sold in the third quarter of
2000 and the Partnership received liquidation proceeds of $3.2 million for its
net investment of $2.1 million.
5. OPERATING SEGMENTS
The Partnership operates or operated primarily in five different segments:
aircraft leasing, marine container leasing, marine vessel leasing, trailer
leasing, and railcar leasing. Each equipment leasing segment engages 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,
interest expense, and certain other expenses. The segments are managed
separately due to different business strategies for each operation.
PLM EQUIPMENT GROWTH FUND III
(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
Aircraft Container Trailer Railcar
For the Year Ended December 31, 2001 Leasing Leasing Leasing Leasing Other (1) Total
------------------------------------ ------- ------- ------- ------- ----- -----
REVENUES
Lease revenue $ 185 $ 26 $ 404 $ 6,412 $ -- $ 7,027
Interest income and other 39 -- -- 20 259 318
Net gain on disposition of 3,688 82 32 337 -- 4,139
equipment
-------------------------------------------------------------
Total revenues 3,912 108 436 6,769 259 11,484
-------------------------------------------------------------
EXPENSES
Operations support 104 1 212 1,919 109 2,345
Depreciation and amortization 151 29 151 1,560 -- 1,891
Management fees to affiliate 2 1 21 439 -- 463
General and administrative expenses 223 -- 80 259 871 1,433
Provision for (recovery of) bad -- -- (9) 73 -- 64
debts
-------------------------------------------------------------
Total costs and expenses 480 31 455 4,250 980 6,196
-------------------------------------------------------------
Equity in net income of an USPE -- -- -- -- (10) (10)
-------------------------------------------------------------
Net income (loss) $ 3,432 $ 77 $ (19) $ 2,519 $ (731) $ 5,278
=============================================================
Total assets as of December 31, 2001 $ -- $ 41 $ 808 $ 3,469 $ 10,164 $ 14,482
=============================================================
Marine
Aircraft Container Marine Trailer Railcar
For the Year Ended December 31, 2000 Leasing Leasing Vessel Leasing Leasing Other (2) Total
------------------------------------ ------- ------- ------ ------- ------- ----- -----
REVENUES
Lease revenue $ 3,867 $ 80 $ -- $ 560 $ 6,591 $ -- $ 11,098
Interest income and other (18 ) -- -- -- 12 211 205
Net gain on disposition of 9,460 62 -- 79 106 -- 9,707
equipment
------------------------------------------------------------------------
Total revenues 13,309 142 -- 639 6,709 211 21,010
------------------------------------------------------------------------
EXPENSES
Operations support 464 4 -- 208 2,019 34 2,729
Depreciation and amortization 2,784 72 -- 255 1,633 29 4,773
Interest expense -- -- -- -- -- 306 306
Management fees to affiliate 142 4 -- 29 459 -- 634
General and administrative expenses 251 1 -- 100 267 861 1,480
Revaluation of equipment -- -- -- 202 -- -- 202
Recovery of bad debts -- -- -- (7) (87) -- (94)
------------------------------------------------------------------------
Total costs and expenses 3,641 81 -- 787 4,291 1,230 10,030
------------------------------------------------------------------------
Equity in net income of an USPE 23 -- 895 -- -- -- 918
------------------------------------------------------------------------
Net income (loss) $ 9,691 $ 61 $ 895 $ (148) $ 2,418 $ (1,019) $ 11,898
========================================================================
Total assets as of December 31, 2000 $ 1,837 $ 149 $ 76 $ 965 $ 5,135 $ 1,875 $ 10,037
========================================================================
(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 certain operations support
and general and administrative expense. Also includes loss from an entity
that owned a marine vessel.
(2) 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 interest and amortization
expense, certain operations support and general and administrative expense.
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
5. OPERATING SEGMENTS (continued)
Marine
Aircraft Container Marine Trailer Railcar
For the Year Ended December 31, 1999 Leasing Leasing Vessel Leasing Leasing Other (1) Total
------------------------------------ ------- ------- ------ ------- ------- ----- -----
REVENUES
Lease revenue $ 5,632 $ 120 $ 1,477 $ 741 $ 6,882 $ -- $ 14,852
Interest income and other 47 -- 45 -- 170 183 445
Net gain (loss) on disposition of
Equipment 1,760 96 -- (42) 383 -- 2,197
------------------------------------------------------------------------
Total revenues 7,439 216 1,522 699 7,435 183 17,494
EXPENSES
Operations support 656 2 817 229 1,782 38 3,524
Depreciation and amortization 4,693 114 643 344 1,766 68 7,628
Interest expense -- -- -- -- -- 1,021 1,021
Management fees to affiliate 213 6 75 41 472 -- 807
General and administrative expenses 419 4 45 132 270 732 1,602
Provision for (recovery of) bad 222 -- -- (15) 101 -- 308
debts
------------------------------------------------------------------------
Total costs and expenses 6,203 126 1,580 731 4,391 1,859 14,890
------------------------------------------------------------------------
Minority interests -- -- -- -- -- 22 22
------------------------------------------------------------------------
Equity in net income (loss) of an 1,477 -- (64) -- -- -- 1,413
USPE
------------------------------------------------------------------------
Net income (loss) $ 2,713 $ 90 $ (122) $ (32) $ 3,044 $ (1,654) $ 4,039
========================================================================
(1) Includes certain interest income and costs not identifiable to a particular
segment such as interest and amortization expense 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, Europe and
Asia. Marine containers are leased to multiple lessees in different regions that
operate worldwide.
The table below sets forth lease revenues by geographic region for the
Partnership's owned equipment and investments in an USPE grouped by domicile of
the lessee as of and for the years ended December 31, (in thousands of dollars):
Region Owned Equipment Investment in an USPE
- ----------------------------- ----------------------------------- -----------------------------------
2001 2000 1999 2001 2000 1999
----------------------------------- -----------------------------------
United States $ 2,623 $ 2,513 $ 3,651 $ -- $ -- $ --
Canada 4,378 6,364 6,768 -- -- --
Europe -- 2,141 2,836 -- -- --
Rest of the world 26 80 1,597 -- 713 243
----------------------------------- -----------------------------------
Lease revenues $ 7,027 $ 11,098 $ 14,852 $ -- $ 713 $ 243
=================================== ===================================
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
6. GEOGRAPHIC INFORMATION (CONTINUED)
The following table sets forth net income (loss) information by region for the
owned equipment and investment in an USPE for the years ended December 31, (in
thousands of dollars):
Region Owned Equipment Investment in an USPE
- ----------------------------- ----------------------------------- -----------------------------------
2001 2000 1999 2001 2000 1999
----------------------------------- -----------------------------------
United States $ (410) $ (1,021) $ (64) $ -- $ -- $ --
Canada 2,616 8,642 4,375 -- 23 1,477
Europe -- 5,921 621 -- -- --
Asia -- (1,530) (1,627) -- -- --
Rest of the world -- 61 38 -- 895 (64)
----------------------------------- -----------------------------------
Regional income 2,206 12,073 3,343 -- 918 1,413
Administrative and other 3,082 (1,093) (717) (10) -- --
----------------------------------- -----------------------------------
Net income (loss) $ 5,288 $ 10,980 $ 2,626 $ (10) $ 918 $ 1,413
=================================== ===================================
The net book value of these assets as of December 31, was as follows (in
thousands of dollars):
Region Owned Equipment Investments in an USPE
- ----------------------------- ---------------------------- ----------------------------
2001 2000 2001 2000
---------------------------- ----------------------------
United States $ 1,793 $ 2,694 $ -- $ --
Europe -- -- -- --
Canada 2,082 4,454 --
Asia -- 150 -- --
Rest of the world 23 72 -- 76
---------------------------- ----------------------------
Net book value $ 3,898 $ 7,370 $ -- $ 76
============================ ============================
7. CONCENTRATIONS OF CREDIT RISK
No single lessee accounted for more than 10% of total consolidated revenues for
the years ended December 31, 2001, 2000, and 1999. During 2000, however, BCI
Aircraft Leasing, Inc. purchased two Boeing 737's from the Partnership and the
gain from the sale accounted for 33%, of total revenues from the wholly- and
jointly-owned equipment in that year.
As of December 31, 2001 and 2000, the General Partner believes the Partnership
had no other 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.
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
8. INCOME TAXES (continued)
As of December 31, 2001, the federal income tax basis was higher than the
financial statement carrying amount of assets and liabilities by $20.8 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 against two defaulting Indian airline lessees 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 these airlines, causing one of the airline lessees to cease operations. In
response to the Partnership's collection efforts, the airline lessees filed
counter-claims 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, an arbitration between one India lessee and the Partnership took
place and the Partnership was awarded a settlement. The General Partner and the
lessee are in the process of negotiating the settlement in a manner that
benefits all parties involved. The General Partner decided not to accrue the
amount of the settlement because collection of the settlement is remote. The
General Partner will continue to try to collect the full amount of the
settlement.
During 2001, the General Partner has decided to minimize its collection efforts
from the other India lessee in order to save the Partnership from incurring
additional expenses associated with trying to collect from a lessee that has a
limited 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 OF PARTNERSHIP
During the first quarter of 2000, the Partnership completed its eleventh year of
operations. The General Partner filed a certificate of dissolution on behalf of
the Partnership with the Secretary of State for the State of California on
December 22, 2000, and following completion of the liquidation of the
Partnership which is anticipated to occur in 2002, the General Partner will file
a certificate of cancellation. 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 from time to
time 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 reported at the lower of depreciated cost of fair
value less cost to dispose. 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.
There have been no special distributions in 2001, 2000, or 1999. The Partnership
is not permitted to reinvest proceeds from sales or liquidations of equipment.
These proceeds, in excess of operational cash requirement are periodically paid
out to limited partners in the form of special distributions. The sales and
liquidations occur because of the determination by the General Partner that it
is the appropriate time to maximize the return on an asset through the sale of
that asset, and, in some leases, the ability of the lessee to exercise purchase
options.
PLM EQUIPMENT GROWTH FUND III
(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 year
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 $ 5,865 $ 1,963 $ 1,797 $ 1,859 $ 11,484
Net income 3,873 427 588 390 5,278
Per weighted-average
depositary unit
Net income $ 0.39 $ 0.04 $ 0.06 $ 0.04 $ 0.53
In the first quarter of 2001, the Partnership sold aircraft, railcars, marine
containers, and trailers for a gain of $3.8 million.
The following is a summary of the quarterly results of operations for the year
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 $ 3,205 $ 3,050 $ 12,664 $ 2,091 $ 21,010
Net income (loss) 551 213 11,433 (299) 11,898
Per weighted-average
depositary unit
Net income (loss) $ 0.05 $ 0.02 $ 1.16 $ (0.08) $ 1.15
In the third quarter of 2000, the Partnership sold aircraft, railcars, marine
containers, trailers, and a 56% interest in an USPE (marine vessel) for a gain
of $10.7 million.
In the fourth quarter of 2000, a net loss $0.3 was due to depreciation expense
from off-lease aircraft.
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund III:
We have audited the financial statements of PLM Equipment Growth Fund III (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 III, 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 Acccountants
Tampa, Florida
March 8, 2002
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund III:
Under date of March 2, 2001, we reported on the balance sheet of PLM Equipment
Growth Fund III 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 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 2, 2001
SCHEDULE II
PLM EQUIPMENT GROWTH FUND III
(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 $ 455 $ 64 $ (1) $ 518
======================================================================
Year Ended December 31, 2000
Allowance for Doubtful Accounts $ 1,757 $ -- $ (1,302) $ 455
======================================================================
Year Ended December 31, 1999
Allowance for Doubtful Accounts $ 1,469 $ 308 $ (20) $ 1,757
======================================================================
PLM EQUIPMENT GROWTH FUND III
INDEX OF EXHIBITS
Exhibit Page
4. Limited Partnership Agreement of Partnership. *
4.1 Amendment to Limited Partnership Agreement of Registrant *
10.1 Management Agreement between Partnership and PLM Investment *
Management, Inc.
Financial Statements required under Regulation S-X Rule 3-09
99.1 TAP Trust 44
* Incorporated by reference. See page 20 of this report.