Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-15436
_______________________
PLM EQUIPMENT GROWTH FUND
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2998816
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 CARILLON PARKWAY, SUITE 200
ST. PETERSBURG, FL 33716
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (727) 803-8200
_______________________
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 ______
----
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
CONDENSED BALANCE SHEETS
(in thousands of dollars, except unit amounts)
(unaudited)
June 30, December 31,
2002 2001
--------- ---------
ASSETS
Equipment held for operating lease, at cost $ 21,127 $ 21,601
Less accumulated depreciation (20,833) (21,213)
--------- ---------
Net equipment 294 388
Cash and cash equivalents 4,455 3,354
Accounts receivable, less allowance for doubtful accounts
of $70 in 2002 and $124 in 2001 168 314
Investment in an unconsolidated special-purpose entity 341 630
Prepaid expenses and other assets 46 30
--------- ---------
Total assets $ 5,304 $ 4,716
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 93 $ 182
Due to affiliates 42 19
Lessee deposits 3 12
--------- ---------
Total liabilities 138 213
--------- ---------
Partners' capital:
Limited partners' (5,784,275 depositary units
in 2002 and 2001) 5,166 4,503
General Partner -- --
--------- ---------
Total partners' capital 5,166 4,503
--------- ---------
Total liabilities and partners' capital $ 5,304 $ 4,716
========= =========
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
CONDENSED STATEMENTS OF INCOME
(in thousands of dollars, except weighted-average unit amounts)
(unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
======================= =========================
REVENUES
Lease revenue $1,168 $1,267 $2,428 $2,712
Interest and other income 19 24 33 62
Net gain on disposition of equipment 9 62 134 98
------- ------- ------- ------
Total revenues 1,196 1,353 2,595 2,872
------- ------- ------- ------
EXPENSES
Depreciation 38 329 78 659
Repairs and maintenance 367 428 623 799
Insurance expense 23 19 47 81
Management fees to affiliate 63 60 159 120
General and administrative expenses to affiliates 40 62 78 179
Other general and administrative expenses 167 125 241 307
Recovery of bad debts (6) (27) (54) (46)
------- ------- ------- ------
Total expenses 692 996 1,172 2,099
------- ------- ------- ------
Equity in net income (loss) of unconsolidated
special-purpose entities (15) 146 (293) (75)
------- ------- ------- ------
Net income $ 489 $ 503 $1,130 $ 698
======= ======= ======= ======
PARTNERS' SHARE OF NET INCOME
Limited partners $ 484 $ 497 $1,125 $ 682
General Partner 5 6 5 16
------- ------- ------- ------
Total $ 489 $ 503 $1,130 $ 698
======= ======= ======= ======
Limited partners' net income per weighted-average
depositary unit $ 0.08 $ 0.09 $ 0.19 $ 0.12
======= ======= ======= ======
Cash distribution $ 467 $ 701 $ 467 $1,659
======= ======= ======= ======
Cash distribution per limited partners'
weighted-average depositary unit $ 0.08 $ 0.12 $ 0.08 $ 0.28
======= ======= ======= ======
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
CONDENSED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD FROM DECEMBER 31, 2000 TO JUNE 30, 2002
(in thousands of dollars)
(unaudited)
Limited General
Partners Partner Total
======== ======= =======
Partners' capital as of December 31, 2000 $ 5,240 $ -- $ 5,240
Net income 1,368 21 1,389
Cash distribution (2,105) (21) (2,126)
-------- ------- --------
Partners' capital as of December 31, 2001 4,503 -- 4,503
Net income 1,125 5 1,130
Cash distribution (462) (5) (467)
-------- ------- --------
Partners' capital as of June 30, 2002 $ 5,166 $ -- $ 5,166
======== ======= ========
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
For the Six Months
Ended June 30,
2002 2001
==================
OPERATING ACTIVITIES
Net income $1,130 $ 698
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 78 659
Net gain on disposition of equipment (134) (98)
Equity in net loss of unconsolidated special-purpose entity 293 75
Changes in operating assets and liabilities:
Accounts receivable, net 130 (112)
Prepaid expenses and other assets (16) (3)
Accounts payable and accrued expenses (89) (133)
Due to affiliates 23 (24)
Lessee deposits (9) (1)
-------- -------
Net cash provided by operating activities 1,406 1,061
-------- -------
INVESTING ACTIVITIES
Payments for capitalized repairs (1) --
Additional investments in unconsolidated
special-purpose entities to fund operations (4) (89)
Proceeds from disposition of equipment 167 111
------- --------
Net cash provided by investing activities 162 22
------- --------
FINANCING ACTIVITIES
Cash distribution paid to limited partners (462) (1,643)
Cash distribution paid to General Partner (5) (16)
-------- -------
Net cash used in financing activities (467) (1,659)
-------- -------
Net increase (decrease) in cash and cash equivalents 1,101 (576)
Cash and cash equivalents at beginning of period 3,354 2,596
-------- -------
Cash and cash equivalents at end of period $4,455 $ 2,020
======= ========
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Opinion of Management
-----------------------
In the opinion of the management of PLM Financial Services, Inc. (FSI or the
General Partner), the accompanying unaudited condensed financial statements
contain all adjustments necessary, consisting primarily of normal recurring
accruals, to present fairly the unaudited condensed financial position of PLM
Equipment Growth Fund (the Partnership) as of June 30, 2002 and December 31,
2001, the unaudited condensed statements of income for the three and six months
ended June 30, 2002 and 2001, the unaudited condensed statements of changes in
partners' capital for the period from December 31, 2000 to June 30, 2002, and
the unaudited condensed statements of cash flows for the six months ended June
30, 2002 and 2001. Certain information and note disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted from the accompanying condensed financial statements. For further
information, reference should be made to the financial statements and notes
thereto included in the Partnership's Annual Report on Form 10-K for the year
ended December 31, 2001, on file at the Securities and Exchange Commission.
2. Schedule of Partnership Phases
---------------------------------
The Partnership, in accordance with its limited partnership agreement, entered
its liquidation phase on January 1, 1998, and has commenced an orderly
liquidation of the Partnership's assets. The Partnership will terminate on
December 31, 2006, unless terminated earlier upon the sale of all equipment or
by certain other events. The General Partner may no longer reinvest cash flows
and surplus funds in equipment. All future cash flows and surplus funds, if
any, are to be used for distributions to partners, except to the extent used to
maintain reasonable reserves. During the liquidation phase, the Partnership's
assets will continue to be recorded at the lower of the carrying amount or fair
value less cost to sell.
3. Cash Distributions
-------------------
Cash distributions are recorded when paid and may include amounts in excess of
net income that are considered a return on capital. For the three months ended
June 30, 2002 and 2001 cash distributions totaled $0.5 and $0.7 million,
respectively. For the six months ended June 30, 2002 and 2001, cash
distributions totaled $0.5 and $1.7 million, respectively. None of the
distributions in the six months ended June 30, 2002 were deemed to be a return
of capital. Cash distributions of $1.0 million in the six months ended June 30,
2001 were deemed a return of capital.
4. Transactions with General Partner and Affiliates
-----------------------------------------------------
The balance due to affiliates as of June 30, 2002 and December 31, 2001 of
$42,000 and $19,000, respectively, are payable to FSI and its affiliate for
management fees.
The Partnership's proportional share of the affiliated expenses incurred by the
unconsolidated special-purpose entity (USPE) during 2002 and 2001 is listed in
the following table (in thousands of dollars):
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
===================== =======================
Management fees $ (31) $ (9) $ (8) $ 15
Data processing and administrative
expense 5 5 10 38
These affiliate expenses (increased) or reduced its Partnership's proportional
share of the equity interest in the income of the USPE.
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
5. Equipment
---------
Owned equipment held for operating leases is stated at cost. The components of
owned equipment were as follows (in thousands of dollars):
June 30, December 31,
2002 2001
======== ==========
Railcars $ 20,652 $ 21,016
Marine containers 475 585
-------- ----------
21,127 21,601
Less accumulated depreciation (20,833) (21,213)
-------- ----------
Net equipment $ 294 $ 388
======== ==========
As of June 30, 2002, all equipment was on lease, except for 89 railcars and 8
marine containers with an aggregate net book value of $47,000. As of December
31, 2001, all equipment was on lease except for 30 railcars and 8 marine
containers with an aggregate net book value of $38,000.
For the six months ended June 30, 2002, the Partnership disposed of marine
containers and railcars with an aggregate net book value of $17,000 for proceeds
of $0.2 million. During the six months ended June 30, 2001, the Partnership
disposed of marine containers and railcars with an aggregate net book value of
$13,000, for proceeds of $0.1 million.
6. Investment in Unconsolidated Special-Purpose Entity
-------------------------------------------------------
The Partnership owns equipment jointly with an affiliated program. This is a
single purpose entity that does not have any debt or other financial
encumbrances.
The Partnership owned a 50% interest in a entity owning a marine vessel at June
30, 2002 and December 31, 2001. As of June 30, 2002 and December 31, 2001, all
jointly owned equipment in the Partnership's USPE portfolio was off lease.
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
7. Operating Segments
-------------------
The Partnership operates in three different segments, railcar leasing, marine
container leasing, and marine vessel leasing. Each equipment leasing segment
engages in short-term to mid-term operating leases to a variety of customers.
The following tables present a summary of the operating segments (in thousands
of dollars):
Marine Marine
For the three months ended Railcar Container Vessel
June 30, 2002 Leasing Leasing Leasing Other 1 Total
REVENUES
Lease revenue $ 1,162 $ 6 $ -- $ -- $1,168
Interest income and other -- -- -- 19 19
Net gain on disposition of equipment 6 3 -- -- 9
-------- ---------- --------- --------- -------
Total revenues 1,168 9 -- 19 1,196
-------- ---------- --------- --------- -------
COSTS AND EXPENSES
Operations support 374 -- -- 16 390
Depreciation 32 6 -- -- 38
General and administrative expenses 60 -- -- 147 207
Management fees to affiliate -- -- -- 63 63
Recovery of bad debts (6) -- -- -- (6)
-------- ---------- --------- --------- -------
Total costs and expenses 460 6 -- 226 692
-------- ---------- --------- --------- -------
Equity in net loss of an USPE -- -- (15) -- (15)
-------- ---------- --------- --------- -------
Net income (loss) $ 708 $ 3 $ (15) $ (207) $ 489
======== ========== ========= ========= =======
Total assets as of June 30, 2002 $ 351 $ 98 $ 341 $ 4,514 $5,304
======== ========== ========= ========= =======
Marine Marine
For the three months ended Railcar Container Vessel
June 30, 2001 Leasing Leasing Leasing Other 2 Total
REVENUES
Lease revenue $ 1,253 $ 14 $ -- $ -- $1,267
Interest income and other -- -- -- 24 24
Net gain (loss) on disposition of equipment 62 (1) -- 1 62
--------- ------------ ----------- ------------ --------
Total revenues 1,315 13 -- 25 1,353
--------- ------------ ----------- ------------ --------
COSTS AND EXPENSES
Operations support 431 -- -- 16 447
Depreciation 320 9 -- -- 329
General and administrative expenses 49 -- 2 136 187
Management fees to affiliate -- -- -- 60 60
Recovery of bad debts (27) -- -- -- (27)
--------- ------------ ----------- ------------ --------
Total costs and expenses 773 9 2 212 996
--------- ------------ ----------- ------------ --------
Equity in net income of USPEs -- -- 146 -- 146
--------- ------------ ----------- ------------ --------
Net income (loss) $ 542 $ 4 $ 144 $ (187) $ 503
========= ============ =========== ============ ========
__________________________
1. Includes certain assets not identifiable to a particular segment, such as
cash, prepaid expenses and certain accounts receivable. Also includes interest
income and costs not identifiable to a particular segment, such as management
fees to affiliates and certain operations support and general and administrative
expenses.
2. Includes interest income and costs not identifiable to a particular
segment such as management fees to affiliate and certain operations support and
general and administrative expenses.
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
7. Operating Segments (continued)
-------------------
Marine Marine
For the six months ended Railcar Container Vessel
June 30, 2002 Leasing Leasing Leasing Other 1 Total
REVENUES
Lease revenue $ 2,413 $ 15 $ -- $ -- $2,428
Interest income and other -- -- -- 33 33
Net gain on disposition of equipment 121 13 -- -- 134
---------- ---------- --------- --------- -------
Total revenues 2,534 28 -- 33 2,595
---------- ---------- --------- --------- -------
COSTS AND EXPENSES
Operations support 638 -- -- 32 670
Depreciation 65 13 -- -- 78
General and administrative expenses 106 -- -- 213 319
Management fees to affiliate -- -- -- 159 159
Recovery of bad debts (54) -- -- -- (54)
---------- ---------- --------- --------- -------
Total costs and expenses 755 13 -- 404 1,172
---------- ---------- --------- --------- -------
Equity in net loss of an USPE -- -- (293) -- (293)
---------- ---------- --------- --------- -------
Net income (loss) $ 1,779 $ 15 $ (293) $ (371) $1,130
========== ========== ========= ========= =======
Marine Marine
For the six months ended Railcar Container Vessel
June 30, 2001 Leasing Leasing Leasing Other 1 Total
REVENUES
Lease revenue $ 2,684 $ 28 $ -- $ -- $2,712
Interest income and other -- -- -- 62 62
Net gain (loss) on disposition of equipment 109 (1) -- (10) 98
--------- ----------- --------- --------- -------
Total revenues 2,793 27 -- 52 2,872
--------- ----------- --------- --------- -------
COSTS AND EXPENSES
Operations support 804 -- -- 76 880
Depreciation 641 18 -- -- 659
General and administrative expenses 75 -- 11 400 486
Management fees to affiliate -- -- -- 120 120
Recovery of bad debts (46) -- -- -- (46)
--------- ----------- --------- --------- -------
Total costs and expenses 1,474 18 11 596 2,099
--------- ----------- --------- --------- -------
Equity in net loss of USPEs -- -- (74) (1) (75)
--------- ----------- --------- --------- -------
Net income (loss) $ 1,319 $ 9 $ (85) $ (545) $ 698
========= =========== ========= ========= =======
__________________________
1. Includes interest income and costs not identifiable to a particular
segment such as management fees to affiliate and certain operations support and
general and administrative expenses.
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
8. Net Income Per Weighted-Average Depositary Unit
----------------------------------------------------
Net income per weighted-average depositary unit was computed by dividing net
income attributable to the 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 three and six months
ended June 30, 2002 and 2001 was 5,784,275.
9. Liquidation and Special Distributions
----------------------------------------
On January 1, 1998, the General Partner began the liquidation phase of the
Partnership and commenced an orderly liquidation of the Partnership's assets.
The General Partner is actively marketing the remaining equipment portfolio with
the intent of maximizing sale proceeds. During the liquidation phase of the
Partnership the equipment will continue to be leased under operating leases
until sold. The amounts reflected for assets and liabilities of the Partnership
have not been adjusted to reflect liquidation values. The equipment portfolio
continues to be carried at the lower of depreciated cost or fair value less cost
to dispose. Although the General Partner estimates that there will be
distributions after liquidation of assets and liabilities, the amounts cannot be
accurately determined prior to actual liquidation of the equipment. Upon final
liquidation, the Partnership will be dissolved.
The Partnership is not permitted to reinvest proceeds from the disposition of
equipment. These proceeds, in excess of operational cash requirements, are
periodically paid out to limited partners in the form of special distributions.
No special distributions were paid in the six months ended June 30, 2002 and
2001. 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 sale of that asset, and, in some leases, the ability of the lessee
to exercise purchase options.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-------------------------------------------------------------------
RESULTS OF OPERATIONS
-------------------
(I) RESULTS OF OPERATIONS
Comparison of PLM Equipment Growth Fund's (the Partnership's) Operating Results
- --------------------------------------------------------------------------------
for the Three Months Ended June 30, 2002 and 2001
- ----------------------------------------------------------
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance and
asset specific insurance expenses) on owned equipment decreased during the
second quarter of 2002 compared to the same quarter of 2001. 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 7 to the unaudited condensed 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 segment (in thousands of dollars):
For the Three Months
Ended June 30,
2002 2001
=================
Railcars $788 $822
Marine containers 6 14
Railcars: Railcar lease revenues and direct expenses were $1.2 million and
$0.4 million, respectively, for the second quarter of 2002, compared to $1.3
million and $0.4 million, respectively, for the same quarter of 2001. Lease
revenues decreased $0.1 million due to the disposition of railcars in 2001 and
2002.
Marine containers: Marine container lease revenues were $6,000 and $14,000 in
the second quarter of 2002 and 2001, respectively. The decrease of $8,000 in
lease revenues was due to the disposition of marine containers in 2001 and 2002.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $0.3 million for the second quarter of 2002 decreased
from $0.5 million for the same period in 2001. The decrease was due to a $0.3
million decrease in depreciation expense from 2001 levels reflecting the effect
of asset dispositions in 2001 and 2002.
(C) Net Gain on Disposition of Owned Equipment
Net gain on disposition of equipment in the second quarter of 2002 totaled
$9,000, and resulted from the disposition of marine containers and railcars with
an aggregate net book value of $2,000, for proceeds of $11,000. The net gain on
disposition of owned equipment for the second quarter of 2001 totaled $0.1
million, and resulted from the sale of railcars with an aggregate net book value
of $9,000, for aggregate proceeds of $0.1 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 is a single purpose
entity that has no debt or other financial encumberances.
As of June 30, 2002 and 2001 the Partnership had an interest in an entity that
owns a marine vessel. During the second quarter of 2002, lease revenues of $0.6
million were offset by depreciation expense, direct expenses, and administrative
expenses of $0.6 million. During the same period of 2001, lease revenues of
$0.9 million were offset by depreciation, direct expenses, and administrative
expenses of $0.8 million.
(E) Net Income
As a result of the foregoing, the Partnership's net income was $0.5 million for
the second quarter of 2002 and 2001. The Partnership's ability to operate and
liquidate assets, secure leases and re-lease those assets whose leases expire is
subject to many factors, and the Partnership's performance in the second quarter
of 2002 is not necessarily indicative of future periods. In the second quarter
of 2002 the Partnership distributed $0.5 million to the limited partners, or
$0.08 per weighted-average depositary unit.
Comparison of the Partnership's Operating Results for the Six Months Ended June
- --------------------------------------------------------------------------------
30, 2002 and 2001
- --------------------
(A) Owned Equipment Operations
Lease revenues less direct expenses on owned equipment decreased during the six
months ended June 30, 2002 compared to the same period of 2001. The following
table presents lease revenues less direct expenses by segment (in thousands of
dollars):
For the Six Months
Ended June 30,
2002 2001
====================
Railcars $1,775 $1,880
Marine containers 15 28
Railcars: Railcar lease revenues and direct expenses were $2.4 million and
$0.6 million, respectively, for the six months ended June 30, 2002, compared to
$2.7 million and $0.8 million, respectively, for the same period of 2001. Lease
revenues decreased $0.3 million due to the disposition of railcars in 2001 and
2002. Direct expenses decreased $0.2 million in the six months ended June 30,
2002 compared to the same period of 2001 due to fewer repairs being required for
the railcar portfolio in 2002.
Marine containers: Marine container lease revenues were $15,000 and $28,000 in
the six months ended June 30, 2002 and 2001, respectively. The decrease of
$13,000 in lease revenues was due to the disposition of marine containers in
2001 and 2002.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $0.5 million for the six months ended June 30, 2002
decreased from $1.2 million for the same period in 2001. Significant variances
are explained as follows:
(i) A $0.6 million decrease in depreciation expense from 2001 levels
reflects the effect of asset dispositions in 2001 and 2002.
(ii) A $0.2 million decrease in general and administrative expenses during
the six months ended June 30, 2002 compared to the same period of 2001 resulted
from the reduction in the size of the Partnership's equipment portfolio over the
last twelve months.
(C) Net Gain on Disposition of Owned Equipment
Net gain on disposition of equipment in the six months ended June 30, 2002
totaled $0.1 million, and resulted from the disposition of marine containers and
railcars with an aggregate net book value of $17,000, for proceeds of $0.2
million. Net gain on disposition of equipment for the six months ended June 30,
2001 totaled $0.1, and resulted from the sale of marine containers and railcars
with a net book value of $13,000, for proceeds of $0.1 million.
(D) Equity in Net Loss of Unconsolidated Special-Purpose Entities
Equity in net loss of USPEs represents the Partnership's share of the net loss
generated from the operation of jointly-owned assets accounted for under the
equity method of accounting. These entities are single purpose entities that
have no debt or other financial encumberances. The following table presents
equity in net loss by equipment type (in thousands of dollars):
For the Six Months
Ended June 30,
2002 2001
====================
Marine vessel $(293) $(74)
Aircraft -- (1)
------ -----
Equity in net loss of an USPEs $(293) $(75)
====== =====
Marine vessel: As of June 30, 2002 and 2001 the Partnership had an interest
in an entity that owns a marine vessel. During the six months ended June 30,
2002, lease revenues of $0.8 million were offset by depreciation expense, direct
expenses, and administrative expenses of $1.1 million. During the same period
of 2001, lease revenues of $1.2 million were offset by depreciation, direct
expenses, and administrative expenses of $1.3 million.
Marine vessel lease revenue decreased $0.4 million during the three months ended
June 30, 2002 due to lower voyage charter lease rates earned compared to the
same period of 2001.
Depreciation expense, direct expenses, and administrative expenses decreased
$0.2 million during the six months ended June 30, 2002 compared to the same
period of 2001. A decrease in direct expenses of $0.2 in the six months ended
June 30, 2002 was due to lower repairs and maintenance expenses compared to the
same period of 2001.
(E) Net Income
As a result of the foregoing, the Partnership's net income was $1.1 million for
the six months ended June 30, 2002, compared to net income of $0.7 million
during the same period of 2001. The Partnership's ability to operate and
liquidate assets, secure leases and re-lease those assets whose leases expire is
subject to many factors, and the Partnership's performance in the six months
ended June 30, 2002 is not necessarily indicative of future periods. In the six
months ended June 30, 2002 the Partnership distributed $0.5 million to the
limited partners, or $0.08 per weighted-average depositary unit.
(II) 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, allowance for doubtful accounts, reserves
related to legally mandated equipment repairsand contingencies and litigation.
These estimates are based on the General Partner's historical experience and on
various other assumptions believed to be reasonable under the circumstances.
Actual results may differ from these estimates under different assumptions or
conditions. The General Partner believes, however, that the estimates,
including those for the above-listed items, are reasonable and that actual
results will not vary significantly from the estimated amounts.
The General Partner believes the following critical accounting policies affect
the more significant judgments and estimates used in the preparation of the
Partnership's financial statements:
Asset lives and depreciation methods: The Partnership's primary business
involves the purchase and subsequent lease of long-lived transportation and
related equipment. The General Partner has chosen asset lives that it believes
correspond to the economic life of the related asset. The General Partner has
chosen a deprecation method that it believes matches the benefit to the
Partnership from the asset with the associated costs. These judgments have been
made based on the General Partner's expertise in each equipment segment that the
Partnership operates. If the asset life and depreciation method chosen does not
reduce the book value of the asset to at least the potential future cash flows
from the asset to the Partnership, the Partnership would be required to record a
loss on revaluation. Likewise, if the net book value of the asset was reduced
by an amount greater than the economic value has deteriorated, the Partnership
may record a gain on sale upon final disposition of the asset.
Impairment of long-lived assets: On a regular basis, the General Partner
reviews the carrying value of its equipment, and investment in an USPE to
determine if the carrying value of the assets may not be recoverable due to
current economic conditions. This requires the General Partner to make
estimates related to future cash flows from each asset as well as the
determination if the deterioration is temporary or permanent. If these
estimates or the related assumptions change in the future, the Partnership may
be required to record additional impairment charges.
Allowance for doubtful accounts: The Partnership maintains allowances for
doubtful accounts for estimated losses resulting from the inability of the
lessees to make the lease payments. These estimates are primarily based on the
amount of time that has lapsed since the related payments were due as well as
specific knowledge related to the ability of the lessees to make the required
payments. If the financial condition of the Partnership's lessees were to
deteriorate, additional allowances could be required that would reduce income.
Conversely, if the financial condition of the lessees were to improve or if
legal remedies to collect past due amounts were successful, the allowance for
doubtful accounts may need to be reduced and income would be increased.
Reserves for repairs: The Partnership accrues for legally required repairs to
equipment such as dry docking for marine vessels over the period prior to the
required repairs. The amount that is reserved is based on the General Partner's
expertise in each equipment segment, the past history of such costs for that
specific piece of equipment and discussions with independent, third party
equipment brokers. If the amount reserved is not adequate to cover the cost of
such repairs or if the repairs must be performed earlier than the General
Partner estimated, the Partnership would incur additional repair and maintenance
or equipment operating expenses.
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.
(III) FINANCIAL CONDITION -- CAPITAL RESOURCES AND LIQUIDITY, AND
DISTRIBUTIONS
For the six months ended June 30, 2002, the Partnership generated $1.4 million
in operating cash (net cash provided by operating activities less additional
investments in an USPE, to fund operations, to meet its operating obligations
and pay cash distributions (total for the six months ended June 30, 2001 of $0.5
million) to the partners.
During the six months ended June 30, 2002, the Partnership disposed of marine
containers and railcars and received proceeds of $0.2 million.
Accounts receivable decreased $0.1 million during the six months ended June 30,
2002 due to the timing of cash receipts.
Investment in an unconsolidated special purpose entity decreased by $0.3 million
due to the Partnership recording a loss of $0.3 million from the USPE in the six
months ended June 30, 2002.
The General Partner has not planned any expenditures, nor is it aware of any
contingencies that would cause the Partnership to require any additional
capital.
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 partners
after final disposal of assets and settlement of liabilities, the amounts cannot
be accurately determined prior to actual disposal of the equipment.
(IV) OUTLOOK FOR THE FUTURE
Since the Partnership is in its active liquidation phase, the General Partner is
seeking to selectively re-lease or sell assets as the existing leases expire.
Sale decisions may cause the operating performance of the Partnership to decline
over the remainder of its life.
Several factors may affect the Partnership's operating performance in the
remainder of 2002 and beyond, including changes in the markets for the
Partnership's equipment and changes in the regulatory environment in which that
equipment operates.
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. Other factors affecting the Partnership's contribution in 2002 and
beyond include:
1) Railcar loadings in North America have weakened over the past year.
Utilization and lease rates have been decreasing over this period. Railcar
contribution may decrease in 2002 as existing leases expire and renewal leases
are negotiated.
2) The Partnership's fleet of marine containers is in excess of twelve years of
age and is no longer suitable for use in international commerce either due to
its specific physical condition, or lessee's preferences for newer equipment.
Demand for the Partnership's marine containers will continue to be weak due to
their age.
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 unpredictability of these factors, or
of their occurrence, makes it difficult for the General Partner to clearly
define trends or influences that may impact the performance of the Partnership's
equipment. The General Partner continually monitors both the equipment markets
and the performance of the Partnership's equipment in these markets. The
General Partner may decide to reduce the Partnership's exposure to equipment
markets in which it determines that it cannot operate equipment and achieve
acceptable rates of return.
The Partnership intends to use cash flow from operations and proceeds from
dispositions of equipment to satisfy its operating requirements, maintain
working capital reserves, and to pay cash distributions to the unitholders.
(V) FORWARD-LOOKING INFORMATION
Except for historical information contained herein, this Form 10-Q 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-Q should be read as being
applicable to all related forward-looking statements wherever they appear in
this Form 10-Q. The Partnership's actual results could differ materially from
those discussed here.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--------------------------------------------------------------
The Partnership's primary market risk exposure is that of currency devaluation
risk. During the six months ended June 30, 2002, 81% of the Partnership's total
lease revenues from wholly- and partially-owned equipment came from non-United
States domiciled lessees. Most of the leases require payment in United States
(U.S.) currency. If these lessees' currency devalues against the U.S. dollar,
the lessees could encounter difficulty in making the U.S. dollar denominated
lease payments.
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-------------------------------------
(a) Exhibits
--------
None.
(b) Reports on Form 8-K
----------------------
None.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLM EQUIPMENT GROWTH FUND
By: PLM Financial Services, Inc.
General Partner
Date: August 12, 2002 By: /s/ Stephen M. Bess
----------------------
Stephen M. Bess
President and
Current Chief Accounting Officer
CERTIFICATION
The undersigned hereby certifies, in their capacity as an officer of the General
Partner of PLM Equipment Growth Fund (the Partnership), that the Quarterly
Report of the Partnership on Form 10-Q for the period ended June 30, 2002, fully
complies with the requirements of Section 13(a) of the Securities Exchange Act
of 1934 and that the information contained in such report fairly presents, in
all material respects, the financial condition of the Partnership at the end of
such period and the results of operations of the Partnership for such period.
PLM EQUIPMENT GROWTH FUND
By: PLM Financial Services, Inc.
General Partner
Date: August 12, 2002 By /s/ Stephen M. Bess
----------------------
Stephen M. Bess
President and
Current Chief Accounting Officer
Date: August 12, 2002 By /s/ James A. Coyne
---------------------
James A. Coyne
Chief Financial Officer