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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 QUARTER ENDED SEPTEMBER 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)
September 30, December 31,
2002 2001
------------------------------
ASSETS
Equipment held for operating leases, at cost . . . . . . . $ 21,020 $ 21,601
Less accumulated depreciation. . . . . . . . . . . . . . . (20,764) (21,213)
--------------- --------------
Net equipment. . . . . . . . . . . . . . . . . . . . . . 256 388
Cash and cash equivalents. . . . . . . . . . . . . . . . . 4,555 3,354
Accounts receivable, less allowance for doubtful accounts
of $60 in 2002 and $124 in 2001. . . . . . . . . . . . 296 314
Investment in an unconsolidated special-purpose entity . . 245 630
Prepaid expenses and other assets. . . . . . . . . . . . . 62 30
--------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . $ 5,414 $ 4,716
=============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses. . . . . . . . . . . $ 117 $ 182
Due to affiliates. . . . . . . . . . . . . . . . . . . . . 7 19
Lessee deposits. . . . . . . . . . . . . . . . . . . . . . 2 12
--------------- --------------
Total liabilities. . . . . . . . . . . . . . . . . . . . 126 213
--------------- --------------
Partners' capital:
Limited partners (5,784,275 depositary units
in 2002 and 2001). . . . . . . . . . . . . . . . . . 5,288 4,503
General Partner. . . . . . . . . . . . . . . . . . . . . . -- --
--------------- --------------
Total partners' capital. . . . . . . . . . . . . . . . . 5,288 4,503
--------------- --------------
Total liabilities and partners' capital. . . . . . . $ 5,414 $ 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 Nine Months
Ended September 30, Ended September 30,
2002 2001 2002 2001
====================== =======================
REVENUES
Lease revenue . . . . . . . . . . . . . . . . . . $ 1,110 $ 1,315 $ 3,538 $ 4,028
Interest and other income . . . . . . . . . . . . 19 23 52 84
Gain (loss) on disposition of equipment . . . . . 3 (1) 137 98
----------- ----------- ---------- -----------
Total revenues. . . . . . . . . . . . . . . . . 1,132 1,337 3,727 4,210
----------- ----------- ---------- -----------
EXPENSES
Depreciation. . . . . . . . . . . . . . . . . . . 39 324 117 983
Repairs and maintenance . . . . . . . . . . . . . 323 333 946 1,134
Insurance expense . . . . . . . . . . . . . . . . 23 20 70 101
Management fees to affiliate. . . . . . . . . . . 48 79 207 199
General and administrative expenses to affiliates 28 47 106 224
Other general and administrative expenses . . . . 186 74 427 382
Provision for (recovery of) bad debts . . . . . . -- 59 (54) 13
----------- ----------- ---------- -----------
Total expenses. . . . . . . . . . . . . . . . . 647 936 1,819 3,036
----------- ----------- ---------- -----------
Equity in net loss of unconsolidated
special-purpose entity. . . . . . . . . . . . (363) (349) (656) (424)
----------- ----------- ---------- -----------
Net income. . . . . . . . . . . . . . . . . . $ 122 $ 52 $ 1,252 $ 750
=========== =========== ========== ===========
PARTNERS' SHARE OF NET INCOME
Limited partners. . . . . . . . . . . . . . . . . $ 122 $ 52 $ 1,247 $ 734
General Partner . . . . . . . . . . . . . . . . . -- -- 5 16
----------- ----------- ---------- -----------
Total . . . . . . . . . . . . . . . . . . . . $ 122 $ 52 $ 1,252 $ 750
=========== =========== ========== ===========
Limited partners' net income per weighted-average
depositary unit . . . . . . . . . . . . . . . $ 0.02 $ 0.01 $ 0.22 $ 0.13
=========== =========== ========== ===========
Cash distribution . . . . . . . . . . . . . . . . $ -- $ -- $ 467 $ 1,659
=========== =========== ========== ===========
Cash distribution per limited partners'
weighted-average depositary unit. . . . . . . $ -- $ -- $ 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 SEPTEMBER 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 . . . . . . . . . . . . . . . . 1,247 5 1,252
Cash distribution. . . . . . . . . . . . . (462) (5) (467)
---------- --------- --------
Partners' capital as of September 30, 2002 $ 5,288 $ -- $ 5,288
========== ========= ========
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 Nine Months
Ended September 30,
2002 2001
=======================
OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,252 $ 750
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . 117 983
Gain on disposition of equipment. . . . . . . . . . . . . . . (137) (98)
Equity in net loss of unconsolidated special-purpose entities 656 424
Changes in operating assets and liabilities:
Accounts receivable, net. . . . . . . . . . . . . . . . . . 2 (133)
Prepaid expenses and other assets . . . . . . . . . . . . . (32) 16
Accounts payable and accrued expenses . . . . . . . . . . . (65) (103)
Due to affiliates . . . . . . . . . . . . . . . . . . . . . (12) 2
Lessee deposits . . . . . . . . . . . . . . . . . . . . . . (10) 5
---------- ---------
Net cash provided by operating activities . . . . . . . . 1,771 1,846
---------- ---------
INVESTING ACTIVITIES
Payments for capitalized improvements . . . . . . . . . . . . . (2) --
Additional investments in unconsolidated
special-purpose entities to fund operations. . . . . . . . (271) (156)
Proceeds from disposition of equipment. . . . . . . . . . . . . 170 107
---------- ---------
Net cash used in investing activities . . . . . . . . . . (103) (49)
---------- ---------
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 in cash and cash equivalents . . . . . . . . . . . 1,201 138
Cash and cash equivalents at beginning of period. . . . . . . . 3,354 2,596
---------- ---------
Cash and cash equivalents at end of period. . . . . . . . . . . $ 4,555 $ 2,734
========== =========
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 September 30, 2002 and December
31, 2001, the unaudited condensed statements of income for the three and nine
months ended September 30, 2002 and 2001, the unaudited condensed statements of
changes in partners' capital for the period from December 31, 2000 to September
30, 2002, and the unaudited condensed statements of cash flows for the nine
months ended September 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. There were no cash
distributions in the three months ended September 30, 2002 and 2001. For the
nine months ended September 30, 2002 and 2001, cash distributions totaled $0.5
and $1.7 million, respectively. Cash distributions of $-0- and $1.0 million in
the nine months ended September 30, 2002 and 2001, respectively were deemed a
return of capital.
4. Transactions with General Partner and Affiliates
-----------------------------------------------------
The balance due to affiliates as of September 30, 2002 and December 31, 2001 of
$7,000 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 Nine Months
Ended September 30, Ended September 30,
2002 2001 2002 2001
===================== ===================
Management fees. . . . . . . . . . $ (24) $ (17) $ (32) $ (3)
Data processing and administrative
expense. . . . . . . . . . . . 1 10 11 50
These affiliated expenses (increased) or reduced the 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):
September 30, December 31,
2002 2001
============== ==============
Railcars. . . . . . . . . . . $ 20,545 $ 21,016
Marine containers . . . . . . 475 585
--------------- --------------
21,020 21,601
Less accumulated depreciation (20,764) (21,213)
--------------- --------------
Net equipment . . . . . . . $ 256 $ 388
=============== ==============
As of September 30, 2002, all equipment was on lease, except for 89 railcars and
8 marine containers with an aggregate net book value of $0.1 million. 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 nine months ended September 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 nine months ended September 30, 2001, the
Partnership disposed of marine containers and railcars with an aggregate net
book value of $25,000, for proceeds of $0.1 million.
6. Investment in Unconsolidated Special-Purpose Entity
-------------------------------------------------------
The Partnership owns a 50% interest in the Clement Partnership that owns a
product tanker jointly with an affiliated program. This is a single purpose
entity that does not have any debt or other financial encumbrances. Ownership
interest is based on the Partnership's contribution towards the cost of the
equipment in the USPE. The Partnership's proportional share of equity and income
(loss) in the entity is not necessarily the same as its ownership interest. The
primary reason for this difference has to do with certain fees such as
management and acquisition and lease negotiation fees varying among the owners
of the USPE.
The tables below set forth 100% of the assets, liabilities, and equity of the
entity in which the Partnership has an interest and the Partnership's
proportional share of equity in the entity as of September 30, 2002 and December
31, 2001 (in thousands of dollars):
September 30, December 31,
2002 2001
======= =======
Assets
Equipment less accumulated depreciation $ 672 $ 1,239
Receivables . . . . . . . . . . . . . . 16 302
------- -------
Total assets. . . . . . . . . . . . . $ 688 $ 1,541
======= =======
Liabilities
Accounts payable. . . . . . . . . . . . $ 198 248
Due to affiliates . . . . . . . . . . . -- 48
------- -------
Total liabilities . . . . . . . . . . 198 296
------- -------
Equity. . . . . . . . . . . . . . . . . . 490 1,245
------- -------
Total liabilities and equity. . . . . . $ 688 $ 1,541
======= =======
Partnership's share of equity . . . . . . . $ 245 $ 630
======= =======
The table below sets forth 100% of the lease revenues, direct and indirect
expenses and net loss of the entity in which the Partnership has an interest and
the Partnership's proportional share of loss in the equity for the three and
nine months ended September 30, 2002 and 2001 (in thousands of dollars):
For the three months ended
September 30, 2002 2001
- -----------------------------------------------
Revenues. . . . . . . . . . . $ 191 $ 570
Less: Direct expenses . . . . 762 1,075
Indirect expenses . 173 222
------ -------
Net loss. . . . . . . . . . $(744) (727)
====== =======
Partnership's share of net loss $(363) $ (349)
====== =======
For the nine months ended
September 30, 2002 2001
- -----------------------------------------------
Revenues. . . . . . . . . . . $ 1,876 $2,913
Direct expenses . . . . . . . 2,601 3,056
Indirect expenses . . . . . . 654 773
-------- -------
Net loss. . . . . . . . . . $(1,379) $ (916)
======== =======
Partnership's share of net loss $ (656) $ (424)
======== =======
As of September 30, 2002 and December 31, 2001, the jointly-owned equipment in
the Partnership's USPE portfolio was on 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
September 30, 2002 Leasing Leasing Leasing Other 1 Total
- --------------------------------------------------------------------------------------------
REVENUES
Lease revenue . . . . . . . . . . . . $ 1,107 $ 3 $ -- $ -- $1,110
Interest income and other . . . . . . -- -- -- 19 19
Net gain on disposition of equipment. 3 -- -- -- 3
-------- ----------- --------- --------- -------
Total revenues . . . . . . . . . . 1,110 3 -- 19 1,132
-------- ----------- --------- --------- -------
COSTS AND EXPENSES
Operations support. . . . . . . . . . 331 -- -- 15 346
Depreciation. . . . . . . . . . . . . 34 5 -- -- 39
General and administrative expenses . 59 -- -- 155 214
Management fees to affiliate. . . . . -- -- -- 48 48
-------- ----------- --------- --------- -------
Total costs and expenses. . . . . 424 5 -- 218 647
-------- ----------- --------- --------- -------
Equity in net loss of an USPE . . . . . -- -- (363) -- (363)
-------- ----------- --------- --------- -------
Net income (loss) . . . . . . . . . . . $ 686 $ (2) $ (363) $ (199) $ 122
======== =========== ========= ========= =======
Total assets as of September 30, 2002 . $ 501 $ 51 $ 245 $ 4,617 $5,414
======== =========== ========= ========= =======
Marine Marine
For the three months ended Railcar Container Vessel
September 30, 2001 Leasing Leasing Leasing Other 2 Total
- ----------------------------------------------------------------------------------------------------
REVENUES
Lease revenue . . . . . . . . . . . . . . . . $ 1,297 $ 18 $ -- $ -- $1,315
Interest income and other . . . . . . . . . . -- -- -- 23 23
Net gain (loss) on disposition of equipment. -- (1) -- -- (1)
-------- ----------- --------- --------- -------
Total revenues . . . . . . . . . . . . . . 1,297 17 -- 23 1,337
-------- ----------- --------- --------- -------
COSTS AND EXPENSES
Operations support. . . . . . . . . . . . . . 335 -- 2 16 353
Depreciation. . . . . . . . . . . . . . . . . 316 8 -- -- 324
General and administrative expenses . . . . . 30 -- -- 91 121
Management fees to affiliate. . . . . . . . . -- -- -- 79 79
Recovery of bad debts . . . . . . . . . . . . 59 -- -- -- 59
-------- ----------- --------- --------- -------
Total costs and expenses. . . . . . . . . 740 8 2 186 936
-------- ----------- --------- --------- -------
Equity in net income of USPEs . . . . . . . . . -- -- (348) (1) (349)
-------- ----------- --------- --------- -------
Net income (loss) . . . . . . . . . . . . . . . $ 557 $ 9 $ (350) $ (164) $ 52
======== =========== ========= ========= =======
__________________________
1. Includes certain assets not identifiable to a particular segment, such as
cash and prepaid expenses. Also 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 and costs.
2. Includes interest income and costs not identifiable to a particular
segment such as management fees to affiliate, 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 nine months ended Railcar Container Vessel
September 30, 2002 Leasing Leasing Leasing Other 1 Total
- --------------------------------------------------------------------------------------------
REVENUES
Lease revenue . . . . . . . . . . . . $ 3,520 $ 18 $ -- $ -- $3,538
Interest income and other . . . . . . -- -- -- 52 52
Net gain on disposition of equipment. 124 13 -- -- 137
--------- ---------- --------- --------- -------
Total revenues . . . . . . . . . . 3,644 31 -- 52 3,727
--------- ---------- --------- --------- -------
COSTS AND EXPENSES
Operations support. . . . . . . . . . 969 -- -- 47 1,016
Depreciation. . . . . . . . . . . . . 99 18 -- -- 117
General and administrative expenses . 165 -- -- 368 533
Management fees to affiliate. . . . . -- -- -- 207 207
Recovery of bad debts . . . . . . . . (54) -- -- -- (54)
--------- ---------- --------- --------- -------
Total costs and expenses. . . . . 1,179 18 -- 622 1,819
--------- ---------- --------- --------- -------
Equity in net loss of an USPE . . . . . -- -- (656) -- (656
--------- ---------- --------- --------- -------
Net income (loss) . . . . . . . . . . . $ 2,465 $ 13 $ (656) $ (570) $1,252
========= ========== ========= ========= =======
Marine Marine
For the nine months ended Railcar Container Vessel
September 30, 2001 Leasing Leasing Leasing Other 1 Total
- ---------------------------------------------------------------------------------------------------
REVENUES
Lease revenue. . . . . . . . . . . . . . . . $ 3,982 $ 46 $ -- $ -- $4,028
Interest income and other. . . . . . . . . . -- -- -- 84 84
Net gain (loss) on disposition of equipment. 109 (1) -- (10) 98
-------- ----------- --------- --------- -------
Total revenues. . . . . . . . . . . . . . 4,091 45 -- 74 4,210
-------- ----------- --------- --------- -------
COSTS AND EXPENSES
Operations support . . . . . . . . . . . . . 1,140 -- 2 93 1,235
Depreciation . . . . . . . . . . . . . . . . 957 26 -- -- 983
General and administrative expenses. . . . . 104 1 12 489 606
Management fees to affiliate . . . . . . . . -- -- -- 199 199
Recovery of bad debts. . . . . . . . . . . . 13 -- -- -- 13
-------- ----------- --------- --------- -------
Total costs and expenses . . . . . . . . 2,214 27 14 781 3,036
-------- ----------- --------- --------- -------
Equity in net loss of USPEs. . . . . . . . . . -- -- (422) (2) (424)
-------- ----------- --------- --------- -------
Net income (loss). . . . . . . . . . . . . . . $ 1,877 $ 18 $ (436) $ (709) $ 750
======== =========== ========= ========= =======
__________________________
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 nine months
ended September 30, 2002 and 2001 were 5,784,275, respectively.
9. Liquidation
-----------
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 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.
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 September 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 third
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, management fees to affiliate, 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 September 30,
2002 2001
--------------------
Railcars. . . . . $ 776 $ 962
Marine containers 3 18
Railcars: Railcar lease revenues and direct expenses were $1.1 million and
$0.3 million, respectively, for the third quarter of 2002, compared to $1.3
million and $0.3 million, respectively, for the same quarter of 2001. Lease
revenues decreased $0.2 million due to the disposition of railcars in 2001 and
2002.
Marine containers: Marine container lease revenues were $3,000 and $18,000 in
the third quarter of 2002 and 2001, respectively. The decrease of $15,000 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 third quarter of 2002 decreased
from $0.6 million for the same period in 2001. Significant variances are
explained as follows:
(i) A $0.3 million decrease in depreciation expense from 2001 levels
reflects the effect of asset dispositions in 2001 and 2002.
(ii) A $0.1 million decrease in the provision for bad debts was based on the
General Partner's evaluation of the collectability of receivables compared
to 2001.
(iii) A $0.1 million increase in general and administrative expenses was due
to increased professional service costs.
(C) Gain (Loss) on Disposition of Owned Equipment
Gain on disposition of equipment in the third quarter of 2002 totaled $3,000,
and resulted from the disposition of railcars with an aggregate net book value
of $-0-, for proceeds of $3,000. The loss on disposition of owned equipment for
the third quarter of 2001 totaled $1,000, and resulted from the sale of marine
containers with an aggregate net book value of $12,000, for aggregate proceeds
of $11,000.
(D) Equity in Net Loss of an Unconsolidated Special-Purpose Entity (USPE)
Equity in net loss of an USPE 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. This entity is a single purpose entity that has no
debt or other financial encumbrances.
As of September 30, 2002 and 2001 the Partnership had an interest in an entity
that owns a marine vessel. During the third quarter of 2002, the Partnership's
share of lease revenues of $0.1 million were offset by depreciation expense,
direct expenses, and administrative expenses of $0.5 million. During the same
period of 2001, lease revenues of $0.3 million were offset by depreciation,
direct expenses, and administrative expenses of $0.6 million. The decrease in
lease revenues of $0.2 million was due to an increase in off-lease time in the
third quarter of 2002 compared to the same period of 2001.
(E) Net Income
As a result of the foregoing, the Partnership's had net income of $0.1 million
for the third 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
third quarter of 2002 is not necessarily indicative of future periods.
Comparison of the Partnership's Operating Results for the Nine Months Ended
- --------------------------------------------------------------------------------
September 30, 2002 and 2001
- -------------------------------
(A) Owned Equipment Operations
Lease revenues less direct expenses on owned equipment decreased during the nine
months ended September 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 Nine Months
Ended September 30,
2002 2001
------------------------
Railcars. . . . . $ 2,551 $ 2,842
Marine containers 18 46
Railcars: Railcar lease revenues and direct expenses were $3.5 million and
$1.0 million, respectively, for the nine months ended September 30, 2002,
compared to $4.0 million and $1.1 million, respectively, for the same period of
2001. Lease revenues decreased $0.5 million and direct costs decreased $0.1
million due to the disposition of railcars in 2001 and 2002.
Marine containers: Marine container lease revenues were $18,000 and $46,000 in
the nine months ended September 30, 2002 and 2001, respectively. The decrease
of $28,000 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 $0.9 million for the nine months ended September 30,
2002 decreased from $1.9 million for the same period in 2001. Significant
variances are explained as follows:
(i) A $0.9 million decrease in depreciation expense from 2001 levels
reflects the effect of asset dispositions in 2001 and 2002.
(ii) A $0.1 million decrease in general and administrative expenses during
the nine months ended September 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) Gain on Disposition of Owned Equipment
Gain on disposition of equipment in the nine months ended September 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. Gain on disposition of equipment for the nine months ended September
30, 2001 totaled $0.1 million, and resulted from the sale of marine containers
and railcars with a net book value of $25,000, for proceeds of $0.1 million.
(D) Equity in Net Loss of an Unconsolidated Special-Purpose Entity
Equity in net loss of an USPE 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. This entity is a single purpose entity that has no
debt or other financial encumbrances. The following table presents equity in
net loss by equipment type (in thousands of dollars):
For the Nine Months
Ended September 30,
2002 2001
--------------------------
Marine vessel. . . . . . . . . $ (656) $ (422)
Aircraft . . . . . . . . . . . -- (2)
Equity in net loss of USPE $ 656) $ (424)
Marine vessel: As of September 30, 2002 and 2001 the Partnership had an
interest in an entity that owns a marine vessel. During the nine months ended
September 30, 2002, the Partnership's share of lease revenues of $0.9 million
were offset by depreciation expense, direct expenses, and administrative
expenses of $1.6 million. During the same period of 2001, lease revenues of
$1.5 million were offset by depreciation, direct expenses, and administrative
expenses of $1.9 million.
Marine vessel lease revenues decreased $0.5 million during the nine months ended
September 30, 2002 due to a decrease in voyage charter lease rates compared to
the same period of 2001.
Depreciation expense, direct expenses, and administrative expenses decreased
$0.3 million during the nine months ended September 30, 2002 compared to the
same period of 2001. A decrease in direct expenses of $0.3 in the nine months
ended September 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 $1.3 million for
the nine months ended September 30, 2002, compared to net income of $0.8 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 nine months
ended September 30, 2002 is not necessarily indicative of future periods. In
the nine months ended September 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 nine months ended September 30, 2002, the Partnership generated $1.5
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 to pay cash distributions (total for the nine months ended
September 30, 2002 of $0.5 million) to the partners.
During the nine months ended September 30, 2002, the Partnership disposed of
marine containers and railcars and received proceeds of $0.2 million.
Investment in an unconsolidated special purpose entity decreased by $0.4 million
due to the Partnership's recording a loss of $0.7 million from the USPE in the
nine months ended September 30, 2002. This decrease was partially offset by the
Partnership contributing $0.3 million to the USPE to fund its operations.
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 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.
(IV) OUTLOOK FOR THE FUTURE
The Partnership is in its active liquidation phase. Given the current economic
environment, and offers received for similar types of equipment owned by the
Partnership, the General Partner has determined it would not be advantageous to
sell the remaining Partnership equipment at the current time. The General
Partner will continue to monitor the equipment markets to determine an optimal
time to sell. In the meantime, equipment will continue to be leased, and
re-leased at market rates as existing leases expire. 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.
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. 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. Through the first nine months of 2002, U.S. and Canadian freight carloads
decreased 1% and 3% respectively, compared to the same period of 2001. There
has been, however, some recent increase in some of the commodities, which drive
demand for those types of railcars most prevalent in the Partnership's fleet.
It will be some time, however, before this translates into new leasing demand by
shippers since most shippers have idle cars in their fleets.
3. Marine vessel freight rates are dependent upon the overall condition of
the international economy. Freight rates earned by the Partnership's partially
owned marine vessel began to decrease during the latter half of 2001 and through
the first nine months of 2002. This trend is expected to continue through the
reminder of 2002. In addition, the marine vessel in which the Partnership owns
an interest was manufactured in 1976 and is nearing the end of its economic
life. This marine vessel is also single hulled which restricts the ports which
it may enter. These conditions severely limit the marine vessel's
marketability.
4. The General Partner has seen an increase in insurance premiums on its
equipment portfolio and is finding it more difficult to place the coverage.
Premiums for the equipment types owned by the Partnership have increased over
25%. The increase in premiums caused by the increase in rate will be partially
mitigated by the reduction in the value of the Partnership equipment portfolio
caused by the events of September 11, 2001 and other economic factors. The
General Partner has also experienced an increase in the deductible required to
obtain coverage. This may have a negative impact on the Partnership in the
event of an insurance claim.
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 nine months ended September 30, 2002, 76% 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.
ITEM 4. CONTROLS AND PROCEDURES
-------------------------
Within the 90-day period prior to the filing of this report, evaluations were
carried out under the supervision and with the participation of the General
Partner's management, including its President and Chief Financial Officer, of
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of
1934). Based upon those evaluations, the President and Chief Financial Officer
concluded that the design and operation of these disclosure controls and
procedures were effective. No significant changes have been made in the
Partnership's internal controls or in other factors that could significantly
affect these controls subsequent to the date of the evaluations.
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-------------------------------------
(a) Exhibits
--------
None.
(b) Reports on Form 8-K
----------------------
None.
- ------
CONTROL CERTIFICATION
- ----------------------
I, James A. Coyne, certify that:
1. I have reviewed this quarterly report on Form 10-Q of PLM Equipment
Growth Fund.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others,
particularly during the period in which this quarterly report is prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and board of Managers:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 11, 2002 By: /s/ James A. Coyne
---------------------
James A. Coyne
President
(Principal Executive Officer)
CONTROL CERTIFICATION
- ----------------------
I, Richard K Brock, certify that:
5. I have reviewed this quarterly report on Form 10-Q of PLM Equipment
Growth Fund.
6. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
7. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
8. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
d) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others,
particularly during the period in which this quarterly report is prepared;
e) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
f) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and board of Managers:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 11, 2002 By: /s/ Richard K Brock
----------------------
Richard K Brock
Chief Financial Officer
(Principal Financial Officer)
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: November 11, 2002 By: /s/ Richard K Brock
----------------------
Chief Financial 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 September 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: November 11, 2002 By /s/ James A. Coyne
---------------------
President
Date: November 11, 2002 By /s/ Richard K Brock
----------------------
Chief Financial Officer