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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 FISCAL QUARTER ENDED JUNE 30, 2002
[ ] 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
_______________________
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.)
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 III
(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 leases at cost $ 31,322 $ 37,731
Less accumulated depreciation (28,560) (33,833)
--------- ---------
Net equipment 2,762 3,898
Cash and cash equivalents 6,898 10,141
Accounts receivable, net of allowance for doubtful
accounts of $542 in 2002 and $518 in 2001 275 420
Prepaid expenses and other assets 44 23
--------- ---------
Total assets` $ 9,979 $ 14,482
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 202 $ 416
Due to affiliates 56 66
Lessee deposits and reserves for repairs 8 29
--------- ---------
Total liabilities 266 511
Partners' capital:
Limited partners (9,871,210 depositary units in 2002 and 2001) 9,713 13,971
General Partner -- --
--------- ---------
Total partners' capital 9,713 13,971
--------- ---------
Total liabilities and partners' capital $ 9,979 $ 14,482
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH FUND III
(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 $1,439 $1,705 $3,046 $3,675
Interest and other income 28 116 67 169
Net gain on disposition of equipment 27 142 199 3,984
---------- ---------- --------- ---------
Total revenues 1,494 1,963 3,312 7,828
EXPENSES
Depreciation and amortization 369 434 755 1,035
Repairs and maintenance 579 531 1,018 1,091
Equipment operating expenses 11 10 19 18
Insurance expense 21 25 42 96
Management fees to affiliate 99 116 210 235
General and administrative expenses to
affiliates 48 86 108 250
Other general and administrative expenses 307 268 446 697
Provision for bad debts 41 66 24 96
---------- ---------- --------- ---------
Total expenses 1,475 1,536 2,622 3,518
Equity in net income (loss) of an unconsolidated
special-purpose entity 6 -- 40 (10)
---------- ---------- --------- ---------
Net income $ 25 $ 427 $ 730 4,300
PARTNERS' SHARE OF NET INCOME
Limited partners $ 25 $ 396 $ 481 $4,269
General Partner -- 31 249 31
---------- ---------- --------- ---------
Total $ 25 $ 427 $ 730 $4,300
Limited partners' net income per weighted-
average depositary unit $ -- $ 0.04 $ 0.05 $ 0.43
Cash distribution $ -- $ 623 $4,988 $ 623
---------- ---------- --------- ---------
Cash distribution per limited partners' weighted-
average depositary unit $ -- $ 0.06 $ 0.48 $ 0.06
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH FUND III
(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 $ 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
Net income 481 249 730
Cash distribution (4,739) (249) (4,988)
Partners' capital as of June 30, 2002 $ 9,713 $ -- $ 9,713
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH FUND III
(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 $ 730 $ 4,300
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 755 1,035
Net gain on disposition of equipment (199) (3,984)
Equity in net (income) loss from unconsolidated special-purpose entity (40) 10
Changes in operating assets and liabilities:
Accounts receivable, net 139 277
Restricted cash -- (2)
Prepaid expenses and other assets (21) 125
Accounts payable and accrued expenses (214) (151)
Due to affiliates (10) (4)
Lessee deposits and reserves for repairs (21) (179)
-------- --------
Net cash provided by operating activities 1,119 1,427
INVESTING ACTIVITIES
Payments for capitalized improvements (21) (54)
Distributions from unconsolidated special-purpose entity 40 66
Proceeds from disposition of equipment 607 5,611
-------- --------
Net cash provided by investing activities 626 5,623
FINANCING ACTIVITIES
Cash distribution paid to limited partners (4,739) (592)
Cash distribution paid to General Partner (249) (31)
-------- --------
Net cash used in financing activities (4,988) (623)
Net (decrease) increase in cash and cash equivalents (3,243) 6,427
Cash and cash equivalents at beginning of period 10,141 1,832
Cash and cash equivalents at end of period $ 6,898 $ 8,259
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH FUND III
(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 III (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, 2000 and has commenced an orderly
liquidation of the Partnership's 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 31, 2000, and following completion
of the liquidation of the Partnership, will file a certificate of cancellation.
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 reported at the lower of 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 to represent a return of capital. For the three
and six months ended June 30, 2002, cash distributions totaled $0 and $5.0
million, respectively. Cash distributions to the limited partners of $4.3
million for the six months ended June 30, 2002 were deemed to be a return of
capital. For the three and six months ended June 30, 2001, cash distributions
were $0.6 million. None of the cash distributions in the six months ended June
30, 2001 were considered 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 $0.1
million is a payable to FSI and its affiliate for management fees.
The Partnership did not incur any expenses to affiliates related to jointly
owned equipment during the six months ended June 30, 2002 and 2001.
PLM EQUIPMENT GROWTH FUND III
(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 $ 27,856 $ 32,305
Trailers 2,473 3,036
Marine containers 993 2,390
--------- ---------
31,322 37,731
Less accumulated depreciation (28,560) (33,833)
--------- ---------
Net equipment $ 2,762 $ 3,898
As of June 30, 2002, all equipment in the Partnership portfolio was on lease
except for six containers and 145 railcars. As of December 31, 2001, all
equipment in the Partnership portfolio was on lease except for 100 railcars.
The net book value of the equipment off lease was $0.3 million as of June 30,
2002 and December 31, 2001.
Capital improvements to the Partnership's equipment of $21,000 and $0.1 million
were made during the six months ended June 30, 2002 and 2001, respectively.
During the six months ended June 30, 2002, the Partnership disposed of marine
containers, trailers, and railcars, with an aggregate net book value of $0.4
million for aggregate proceeds of $0.6 million. During the six months ended
June 30, 2001, the Partnership disposed of aircraft, marine containers,
trailers, and railcars, with an aggregate net book value of $1.6 million, for
aggregate proceeds of $5.6 million.
(This space intentionally left blank)
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
6. Operating Segments
-------------------
The Partnership operates or operated primarily in four different segments:
aircraft leasing, railcar leasing, marine container leasing, and trailer
leasing. Each equipment-leasing segment engages in short-term and mid-term
operating leases to a variety of customers. The following tables present a
summary of the operating segments (in thousands of dollars):
Marine
For the three months ended Railcar Container Trailer All
June 30, 2002 Leasing Leasing Leasing Other 1 Total
REVENUES
Lease revenue $ 1,345 $ 4 $ 90 $ -- $1,439
Interest income and other -- -- -- 28 28
Net gain on disposition of equipment 8 19 -- -- 27
---------- -------- -------- -------- -------
Total revenues 1,353 23 90 28 1,494
COSTS AND EXPENSES
Operations support 531 -- 64 16 611
Depreciation 328 5 36 -- 369
Management fees to affiliates 93 -- 6 -- 99
General and administrative expenses 89 -- 19 247 355
Provision for bad debts 41 -- -- -- 41
---------- -------- -------- -------- -------
Total costs and expenses 1,082 5 125 263 1,475
Equity in net income of an USPE -- -- -- 6 6
---------- -------- -------- -------- -------
Net income (loss) $ 271 $ 18 $ (35) $ (229) $ 25
---------- -------- --------- --------- ------
Total assets as of June 30, 2002 $ 2,305 $ 31 $ 688 $ 6,955 $9,979
Marine
For the three months ended Aircraft Railcar Container Trailer
June 30, 2001 Leasing Leasing Leasing Leasing Other 2 Total
REVENUES
Lease revenue $ -- $ 1,598 $ 11 $ 96 $ -- $1,705
Interest income and other 33 -- -- -- 83 116
Net gain on disposition of equipment -- 134 8 -- -- 142
--------- -------- ---------- -------- --------- ------
Total revenues 33 1,732 19 96 83 1,963
COSTS AND EXPENSES
Operations support 2 492 -- 55 17 566
Depreciation and amortization -- 393 328 34 -- 434
Management fees to affiliates 2 109 -- 5 -- 116
General and administrative expenses 68 78 -- 18 190 354
Provision for bad debts -- 66 -- -- -- 66
--------- -------- ---------- -------- --------- ------
Total costs and expenses 72 1,138 7 112 207 1,536
--------- -------- ---------- -------- --------- ------
Net income (loss) $ (39) $ 594 $ 12 $ (16) $ (124) $ 427
_________________________
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 certain
operations support and general and administrative expenses. Also includes the
equity in the income of an entity that owned a marine vessel and aircraft
expenses.
2 Includes certain interest income and costs not identifiable to a
particular segment such as certain operations support and general and
administrative expenses.
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
6. Operating Segments (continued)
-------------------
Marine
For the six months ended Railcar Container Trailer
June 30, 2002 Leasing Leasing Leasing Other 1 Total
REVENUES
Lease revenue $ 2,824 $ 11 $ 211 $ -- $3,046
Interest income and other 13 -- -- 54 67
Net gain on disposition of equipment 105 69 25 -- 199
-------- ---------- --------- --------- ------
Total revenues 2,942 80 236 54 3,312
COSTS AND EXPENSES
Operations support 917 -- 130 32 1,079
Depreciation 673 11 71 -- 755
Management fees to affiliates 198 -- 12 -- 210
General and administrative expenses 173 -- 38 343 554
Provision for bad debts 15 -- 9 -- 24
-------- ---------- --------- --------- ------
Total costs and expenses 1,976 11 260 375 2,622
Equity in net income of an USPE -- -- -- 40 40
-------- ---------- --------- --------- ------
Net income (loss) $ 966 $ 69 $ (24) $ (281) $ 730
Marine
For the six months ended Aircraft Railcar Container Trailer
June 30, 2001 Leasing Leasing Leasing Leasing Other 2 Total
REVENUES
Lease revenue $ 185 $ 3,278 $ 23 $ 189 $ -- $3,675
Interest income and other 39 -- -- -- 130 169
Net gain on disposition of equipment 3,699 224 40 21 -- 3,984
--------- -------- ---------- -------- --------- -------
Total revenues 3,923 3,502 63 210 130 7,828
COSTS AND EXPENSES
Operations support 27 1,001 -- 100 77 1,205
Depreciation and amortization 151 788 16 80 -- 1,035
Management fees to affiliates 4 220 1 10 -- 235
General and administrative expenses 215 130 -- 38 564 947
Provision for bad debts -- 96 -- -- -- 96
--------- -------- ---------- -------- --------- -------
Total costs and expenses 397 2,235 17 228 641 3,518
Equity in net loss of an USPE -- -- -- -- (10) (10)
--------- -------- ---------- --------- --------- -------
Net income (loss) $ 3,526 $ 1,267 $ 46 $ (18) $ (521) $4,300
7. 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 9,871,210.
_________________________
1 Includes certain interest income and costs not identifiable to a
particular segment such as certain operations support and general and
administrative expenses. Also includes the equity in the income of an entity
that owned a marine vessel and aircraft expenses.
2 Includes certain interest income and costs not identifiable to a particular
segment such as certain operations support and general and administrative
expenses. Also includes the equity in the loss of an entity that owned a
marine vessel.
8. Liquidation and Special Distributions
----------------------------------------
On January 1, 2000, the General Partner began the liquidation phase of the
Partnership and commenced an orderly liquidation of the Partnership 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 and
reasonable reserves, 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 III'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,
equipment operating and asset-specific insurance expenses) on owned equipment
decreased during the three months ended June 30, 2002 compared to the same
period of 2001. Gains or losses from the sale of equipment, interest and other
income, and certain expenses such as depreciation and amortization and general
and administrative expenses relating to the operating segments (see Note 6 to
the unaudited condensed financial statements), are not included in the owned
equipment operation discussion because these expenses are indirect in nature,
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 $814 $1,106
Trailers 26 41
Marine containers 4 11
Aircraft -- (2)
Railcars: Railcar lease revenues and direct expenses were $1.3 million and
$0.5 million, respectively, for the quarter ended June 30, 2002 compared to $1.6
million and $0.5 million for the quarter ended June 30, 2001. The reduction in
lease revenue in 2002 compared to 2001 was due to the disposition of railcars
over the past year.
Trailers: Trailer lease revenues and direct expenses were $0.1 million and
$0.1 million, respectively, for the quarters ended June 30, 2002 and 2001.
(B) Interest and Other Income
Interest and other income decreased $0.1 million in the quarter ended June 30,
2002 compared to the same quarter of 2001 due to a reduction in the amount of
cash in the Partnership.
(C) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $0.9 million for the quarter ended June 30, 2002
decreased from $1.0 million for the same period of 2001. The decrease was due
to a $0.1 million decrease in depreciation and amortization expense resulting
from asset dispositions over the last twelve months.
(D) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of owned equipment for the second quarter of
2002 was $27,000, resulting from the disposition of marine containers and
railcars, with an aggregate net book value of $2,000 for proceeds of $29,000.
The net gain on the disposition of owned equipment for the second quarter of
2001 was $0.1 million, resulting from the disposition of marine containers and
railcars, with an aggregate net book value of $48,000, for proceeds of $0.2
million.
(E) Net Income
As a result of the foregoing, the Partnership had net income of $25,000 in the
second quarter of 2002 compared to net income of $0.4 million in the second
quarter 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. Therefore, the Partnership's performance in the three months ended
June 30, 2002 is not necessarily indicative of future periods.
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 $1,907 $2,277
Trailers 81 89
Marine containers 11 23
Aircraft -- 158
Railcars: Railcar lease revenues and direct expenses were $2.8 million and
$0.9 million, respectively, for the six months ended June 30, 2002 compared to
$3.3 million and $1.0 million for the same period of 2001. The reduction in
lease revenue and direct expenses in 2002 compared to 2001 was due to the
disposition of railcars over the past year.
Trailers: Trailer lease revenues and direct expenses were $0.2 million and
$0.1 million, respectively, for the six months ended June 30, 2002 and 2001.
Aircraft: Aircraft lease revenues and direct expenses were $0.2 million and
$27,000, respectively, during the six months ended June 30, 2001. There were no
aircraft lease revenues and expenses in the six months ended June 30, 2002 as
the Partnership sold its wholly owned aircraft in 2001.
(B) Interest and Other Income
Interest and other income decreased $0.1 million in the six months ended June
30, 2002 compared to the same period of 2001 due to a reduction in the amount of
cash in the Partnership.
(C) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $1.5 million for the quarter ended June 30, 2002
decreased from $2.3 million for the same period of 2001. Significant variances
are explained as follows:
(i) A $0.4 million decrease in general and administrative expenses was due
to a decrease in allocations from the General Partner and third party
professional services due to the reduction in the size of the equipment
portfolio.
(ii) A decrease of $0.3 million in depreciation and amortization expenses in
the six months ended June 30, 2002 compared to the same period in 2001 reflects
the disposition of Partnership assets during 2002 and 2001.
(D) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of owned equipment for the six months ended June
30, 2002 was $0.2 million, resulting from the disposition of marine containers,
railcars and trailers, with an aggregate net book value of $0.4 million for
proceeds of $0.6 million. The net gain on the disposition of equipment was $4.0
million for the six months ended June 30, 2001, resulting from the disposition
of aircraft, marine containers, trailers, and railcars with an aggregate net
book value of $1.6 million, for aggregate proceeds of $5.6 million.
(E) Equity in Net Income of an Unconsolidated Special-Purpose Entity (USPE)
Equity in net income of an USPE represents the Partnership's share of the net
income generated from the operation of jointly owned assets accounted for under
the equity method of accounting. This entity was a single purpose entity that
had no debt. Net income generated from the operation of jointly owned assets
was $40,000 in the six months ended June 30, 2002 compared to a loss of $10,000
in the same period of 2001.
As of June 30, 2002 and 2001, the Partnership had no remaining interest in
entities that jointly owned equipment. The Partnership's share of revenues and
expenses in jointly owned equipment was $40,000 and $0 in the six months ended
June 30, 2002, respectively, compared to $6,000 and $16,000, respectively, for
the same period of 2001. The revenue in 2002 primarily related to insurance
proceeds from a marine vessel in which the Partnership previously had an
interest.
(F) Net Income
As a result of the foregoing, the Partnership had net income of $0.7 million in
the six months ended June 30, 2002 compared to net income of $4.3 million in 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. Therefore, 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 $4.7 million to the limited
partners or $0.48 per 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, 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 and investments in USPEs to
determine if the carrying value of the assets 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.
(III) FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
For the six months ended June 30, 2002, the Partnership generated $1.2 million
in operating cash (net cash provided by operating activities plus
non-liquidating distributions from an USPE) to meet its operating obligations
and fund distributions (a total of $5.0 million for the six months ended June
30, 2002) but also used undistributed available cash from prior periods and
proceeds from equipment dispositions of $3.8 million.
During the six months ended June 30, 2002, the Partnership sold owned equipment
and received aggregate proceeds of $0.6 million.
During the six months ended June 30, 2002, accounts receivable decreased $0.1
million due the decrease in the size of the Partnership's equipment portfolio.
During the six months ended June 30, 2002, accounts payable and accrued expenses
decreased $0.2 million due to the payment of $0.2 million for an aircraft repair
that was accrued for as of December 31, 2001.
The General Partner has not planned any expenditure, 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
The Partnership entered its liquidation phase on January 1, 2000. 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. The General Partner filed a
certificate of dissolution on behalf of the Partnership with the Secretary of
State for the State of California in December 2000, and following completion of
the liquidation of the Partnership, the General Partner will file a certificate
of cancellation.
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 will cause a reduction in the size of
the equipment portfolio and may result in a reduction of contribution to the
Partnership. Other factors affecting the Partnership's contribution in the year
2002 include:
1. The Partnership's fleet of marine containers is in excess of twelve years
of age and is no longer suitable for use in international commerce either due to
its specific physical condition, or lessee's preferences for newer equipment.
Demand for the Partnership's marine containers will continue to be weak due to
their age.
2. Railcar loadings in North America have weakened over the past year.
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.
3. Industry-wide utilization of intermodal trailers decreased 12% in the six
months ended June 30, 2002 compared to the six months ended June 30, 2001. This
may lead to lower contribution from the Partnership's trailers as existing
leases expire and renewals 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 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 those
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
disposition of equipment to satisfy its operating requirements, maintain working
capital reserves, and pay cash distributions to the unitholders.
(V) FORWARD-LOOKING INFORMATION
Except for the 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 currency devaluation risk.
During the six months ended June 30, 2002, 67% of the Partnership's total lease
revenues equipment came from non-United States domiciled lessees. Most of the
Partnership's leases require payment in United States (U.S) currency. If these
lessees' currency devalues against the U.S. dollar, the lessees could
potentially encounter difficulty in making the U.S. dollar denominated lease
payments.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-------------------------------------
(a) Exhibits
--------
None.
(b) Reports on Form 8-K
----------------------
None.
(This space intentionally left blank)
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 III
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 III (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 III
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