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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 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.)
235 3RD STREET SOUTH, SUITE 200
ST. PETERSBURG, FL 33701
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (727) 803-1800
_______________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ______
----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ( 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
Aggregate market value of the voting stock: N/A.
Indicate the number of units outstanding of each of the issuer's classes of
depositary units as of the latest practicable date:
Class Outstanding at December 31, 2003
----- ------------------------------------
Limited partnership depositary units: 5,784,275
General Partnership Units: 1
An index of exhibits filed with this Form 10-K is located on page 20.
Total number of pages in this report: 57
PART I
ITEM 1. BUSINESS
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(A) Background
In January 1986, PLM Financial Services, Inc. (FSI or the General Partner), a
wholly-owned subsidiary of PLM International, Inc. (PLM International or PLMI),
filed a Registration Statement on Form S-1 with the Securities and Exchange
Commission with respect to a proposed offering of 6,000,000 depositary units
(the units) in PLM Equipment Growth Fund, a California limited partnership (the
Partnership, the Registrant, or EGF). The Partnership's offering became
effective on May 20, 1986. FSI, as General Partner, owns a 1% interest in the
Partnership. The Partnership engages in the business of investing in a
diversified equipment portfolio consisting primarily of used, long-lived,
low-obsolescence capital equipment that is easily transportable by and among
prospective users.
The Partnership's primary objectives are:
(1) to maintain a diversified portfolio of long-lived, low-obsolescence
high residual-value equipment which was purchased with the net proceeds of the
initial partnership offering, supplemented by debt financing, and surplus
operating cash during the investment phase of the Partnership;
(2) to generate sufficient net operating cash flow from lease
operations to meet liquidity requirements and to generate cash distributions to
the limited partners until such time as the General Partner commences the
orderly liquidation of the Partnership assets or, unless the Partnership is
terminated earlier, upon sale of all Partnership property or by certain other
events;
(3) to selectively sell equipment when the General Partner
believes that, due to market conditions, market prices for equipment exceed
inherent equipment values or that expected future benefits from continued
ownership of a particular asset will have an adverse affect on the Partnership.
As the Partnership is in the liquidation phase, proceeds from these sales,
together with excess net operating cash flow from operations, less reasonable
reserves will be used to pay distributions to the partners;
(4) to preserve and protect the value of the portfolio through quality
management, maintaining the portfolio's diversity and constantly monitoring
equipment markets;
The offering of the units of the Partnership closed on May 19, 1987. The
General Partner contributed $100 for its 1% general partner interest in the
Partnership. On November 20, 1990, the units of the Partnership began trading
on the American Stock Exchange (AMEX). Thereupon each unitholder received a
depositary receipt representing ownership of the number of units owned by such
unitholder. The General Partner delisted the Partnership's units from the AMEX
on April 8, 1996. The last day for trading on the AMEX was March 22, 1996.
As of December 31, 2002, there were 5,784,275 depositary units outstanding
On January 1, 1998, the Partnership entered its liquidation phase and, in
accordance with the limited partnership agreement, the General Partner has
commenced an orderly liquidation of the Partnership's assets. The liquidation
phase will end on December 31, 2006, unless the Partnership is terminated
earlier upon sale of all of the equipment or by certain other events.
Table 1, below, lists the equipment and the cost of the equipment in the
Partnership's portfolio, and the Partnership's proportional share of equipment
owned by an unconsolidated special purpose entity as of December 31, 2002 (in
thousands of dollars):
TABLE 1
-------
Units. . . . . Type Manufacturer Cost
- -----------------------------------------------------------------------
Owned equipment held for operating leases:
796. . . . . .Pressurized tank railcars Various $ 19,934
20 . . . . . Non pressurized tank railcars Various 565
27 . . . . . Refrigerated marine containers Various 386
Total owned equipment held for operating leases $ 20,885 (1)
Equipment owned by an unconsolidated special-purpose entity (USPE):
0.50 . . . Product tanker Kaldnes M/V $ 8,262 (1,2)
Railcars are leased under operating leases with terms of one to six years. The
Partnership's marine containers are leased to operators of utilization-type
leasing pools that include equipment owned by unaffiliated parties. In such
instances, revenues received by the Partnership consist of a specified
percentage of revenues generated by leasing the pooled equipment to sublessees,
after deducting certain direct operating expenses of the pooled equipment. The
marine vessel in the USPE in which the Partnership owns an interest operates in
the short term spot charter market.
(B) Management of Partnership Equipment
The Partnership has entered into an equipment management agreement with PLM
Investment Management, Inc. (IMI), a wholly owned subsidiary of FSI, for the
management of the Partnership's equipment. The Partnership's management
agreement with IMI is to co-terminate with the dissolution of the Partnership,
unless the limited partners vote to terminate the agreement prior to that date
or at the discretion of the General Partner. IMI has agreed to perform all
services necessary to manage the equipment on behalf of the Partnership and to
perform or contract for the performance of all obligations of the lessor under
the Partnership's leases. In consideration for its services and pursuant to the
partnership agreement, IMI is entitled to a monthly management fee (see Notes 1
and 2 to the financial statements).
(C) Competition
(1) Operating Leases versus Full Payout Leases
The equipment owned or invested in by the Partnership is leased out on an
operating lease basis wherein the rents received during the initial
noncancelable term of the lease are insufficient to recover the Partnership's
purchase price of equipment. The short to mid-term nature of operating leases
generally commands a higher rental rate than the longer-term, full payout leases
and offers lessees relative flexibility in their equipment commitment. In
addition, the rental obligation under an operating lease need not be capitalized
on the lessee's balance sheet.
The Partnership encounters considerable competition from lessors that utilize
full payout leases on new equipment, i.e., leases that have terms equal to the
expected economic life of the equipment. While some lessees prefer the
flexibility offered by a shorter-term operating lease, other lessees prefer the
- ---------------------------
1 Includes equipment and investments purchased with capital contributions,
undistributed cash flow from operations, and Partnership borrowings. Includes
costs capitalized subsequent to the date of acquisition, and equipment
acquisition fees paid to PLM Transportation Equipment Corporation, a wholly
owned subsidiary of FSI. All equipment was used equipment at the time of
purchase.
2 Jointly owned:EGF (50%) and one affiliated program.
rate advantages possible with a full payout lease. Competitors may write full
payout leases at considerably lower rates and for longer terms than the
Partnership offers, or larger competitors with a lower cost of capital may offer
operating leases at lower rates, which may put the Partnership at a competitive
disadvantage.
(2) Manufacturers and Equipment Lessors
The Partnership competes with equipment manufacturers who offer operating leases
and full payout leases. Manufacturers may provide ancillary services that the
Partnership cannot offer, such as specialized maintenance services (including
possible substitution of equipment), training, warranty services, and trade-in
privileges.
The Partnership also competes with many equipment lessors, including ACF
Industries, Inc. (Shippers Car Line Division), GATX, General Electric Railcar
Services Corporation, and other investment programs that lease the same types of
equipment.
(D) Demand
The Partnership currently operates in three operating segments: marine vessel
leasing, marine container leasing, and railcar leasing. Each equipment-leasing
segment engages in short-term to mid-term operating leases to a variety of
customers. The Partnership's equipment is used to transport materials and
commodities rather than people.
The following section describes the international and national markets in which
the Partnership's capital equipment operates:
(1) Marine Vessel
The Partnership has an investment in an entity owning a product type tanker
manufactured in 1975 that operates in international markets carrying a variety
of commodity-type cargoes. Demand for commodity-based shipping is closely tied
to worldwide economic growth patterns, which can affect demand by causing
changes in volume on trade routes. The General Partner operates the
Partnership's product tanker in the spot chartering markets, carrying mostly
fuel oil and similar petroleum distillates, an approach that provides the
flexibility to adapt to changes in market conditions.
The marine vessel in which the Partnership owned an interest at December 31,
2002, was nearing the end of its economic life. This asset was sold during the
first quarter of 2003. This marine vessel was a single hulled vessel restricted
by the ports which allowed it to enter. These conditions severely limited the
marine vessel's marketability.
(2) Marine Containers
Marine containers are used to transport a variety of types of cargo. They
typically travel on marine vessels but may also travel on railroads loaded on
certain types of railcars and highways loaded on a trailer.
The Partnership's fleet of dry, refrigerated and other specialized containers is
in excess of 13 years of age, and is generally no longer suitable for use in
international commerce, either due to its specific physical condition, or the
lessees' preferences for newer equipment. As individual containers are returned
from their specific lessees, they are being marketed for sale on an "as is,
where is" basis. The market for such sales is highly dependent upon the
specific location and type of container. The Partnership has continued to
experience reduced residual values on the sale of refrigerated containers
primarily due to technological obsolescence associated with this equipment's
refrigeration machinery.
- ------
(3) Railcars
(a) Pressurized Tank Railcars
Pressurized tank railcars are used to transport liquefied petroleum gas (LPG)
and anhydrous ammonia (fertilizer). The North American markets for LPG include
industrial applications, residential use, electrical generation, commercial
applications, and transportation. LPG consumption is expected to grow over the
next few years as most new electricity generation capacity is expected to be gas
fired. Within any given year, consumption is particularly influenced by the
severity of winter temperatures.
Within the fertilizer industry, demand is a function of several factors,
including the level of grain prices, status of government farm subsidy programs,
amount of farming acreage and mix of crops planted, weather patterns, farming
practices, and the value of the United States (US) dollar. Population growth
and dietary trends also play an indirect role.
On an industry-wide basis, North American carloadings of the commodity group
that includes petroleum and chemicals decreased over 2% in 2002 after a 5%
decline in 2001. Even with this further decrease in industry-wide demand, the
utilization of pressurized tank railcars across the Partnership was in the 85%
range during the year. The desirability of the railcars in the Partnership is
affected by the advancing age of this fleet.
(b) General Purpose (Nonpressurized) Tank Railcars
General purpose tank railcars are used to transport bulk liquid commodities and
chemicals not requiring pressurization, such as certain petroleum products,
liquefied asphalt, lubricating oils, molten sulfur, vegetable oils, and corn
syrup. The overall health of the market for these types of commodities is
closely tied to both the US and global economies, as reflected in movements in
the Gross Domestic Product, personal consumption expenditures, retail sales, and
currency exchange rates. The manufacturing, automobile, and housing sectors are
the largest consumers of chemicals. Within North America, 2002 carloadings of
the commodity group that includes chemicals and petroleum products reversed
previous declines and rose 4% after a fall of 5% during 2001. Utilization of
the Partnership's nonpressurized tank railcars has been increasing reflecting
this market condition and presently stands at about 75%.
(E) Government Regulations
The use, maintenance, and ownership of equipment are regulated by federal,
state, local, or foreign governmental authorities. Such regulations may impose
restrictions and financial burdens on the Partnership's ownership and operation
of equipment. Changes in government regulations, industry standards, or
deregulation may also affect the ownership, operation, and resale of the
equipment. Substantial portions of the Partnership's equipment portfolio are
either registered or operated internationally. Such equipment may be subject to
adverse political, government, or legal actions, including the risk of
expropriation or loss arising from hostilities. Certain of the Partnership's
equipment is subject to extensive safety and operating regulations, which may
require its removal from service or extensive modification of such equipment to
meet these regulations, at considerable cost to the Partnership. Such
regulations include but are not limited to:
(1) In 2004, new maritime and port security laws that have already been
passed by US Congress and International Maritime Organizations are scheduled to
be implemented. The United States Coast Guard is currently holding hearings
with international shipping industry representatives to discuss the
implementation of the new code and regulations, which are to apply to all
shipping, ports and terminals both in the US and abroad. The new regulations are
aimed at improving security aboard marine vessels. These regulations may
require additional security equipment being added to marine vessels as well as
additional training being provided to the crew. The final code, which is
expected to have a significant impact on the industry, will apply to all ships
over 500 dead weight tons that includes the vessel partially owned by the
Partnership. The requirements of these new regulations have to be met by July
2004. The deadline for compliance by ports is planned to be 2005. As the
methodology of how these regulations will be applied is still being determined,
the General Partner is unable to determine the impact on the Partnership at this
time;
(2) The Montreal Protocol on Substances that Deplete the Ozone Layer
and the U.S. Clean Air Act Amendments of 1990, which call for the control and
eventual replacement of substances that have been found to cause or contribute
significantly to harmful effects on the stratospheric ozone layer and which are
used extensively as refrigerants in refrigerated marine cargo containers.
(3) The U.S. Department of Transportation's Hazardous Materials Regulations
regulates the classification and packaging requirements of hazardous materials
which apply particularly to Partnership's tank railcars. The Federal Railroad
Administration has mandated that effective July 1, 2000 all tank railcars must
be re-qualified every ten years from the last test date stenciled on each
railcar to insure tank shell integrity. Tank shell thickness, weld seams, and
weld attachments must be inspected and repaired if necessary to re-qualify the
tank railcar for service. The average cost of this inspection is $3,600 for
jacketed tank railcars and $1,800 for non-jacketed tank railcars. This does not
include any necessary repairs. This inspection is to be performed at the next
scheduled tank test and every ten years thereafter. The Partnership currently
owns 796 jacketed tank railcars and 20 non-jacketed tank railcars. There are 56
jacketed tank railcars and 5 non-jacketed tank railcars that will need
re-qualification in 2003 or 2004. As of December 31, 2002, a total of 36 have
been inspected and no significant defects have been discovered.
As of December 31, 2002, the Partnership was in compliance with the above
government regulations. Typically, costs related to extensive equipment
modifications to meet government regulations are passed on to the lessee of that
equipment.
ITEM 2. PROPERTIES
- -----------------------
The Partnership neither owns nor leases any properties other than the equipment
it has purchased and its interest in an entity that owns equipment for leasing
purposes. As of December 31, 2002, the Partnership owned a portfolio of
transportation and related equipment and an investment in equipment owned by an
unconsolidated special-purpose entity (USPE), as described in Item 1, Table 1.
The Partnership acquired equipment with the proceeds of the Partnership offering
of $100.0 million, proceeds from debt financing of $23.0 million and by
reinvesting a portion of its operating cash flow in additional equipment.
The Partnership maintains its principal office at 235 3rd Street South, Suite
200, St. Petersburg, FL 33701.
ITEM 3. LEGAL PROCEEDINGS
------------------
The Partnership, together with affiliates, initiated litigation in 2000 and 2001
in various official forums in India against a defaulting Indian airline lessee
to repossess Partnership property and to recover damages for failure to pay rent
and failure to maintain such property in accordance with the relevant lease
contract. The Partnership has repossessed all of its property previously leased
to such airline, and the airline has ceased operations. In response to the
Partnership's collection efforts, the airline filed counter-claims against the
Partnership in excess of the Partnership's claims against the airline. The
General Partner believes that the airline's counterclaims are completely without
merit, and the General Partner will vigorously defend against such
counterclaims.
During 2001, the General Partner decided to minimize its collection efforts from
the Indian lessee in order to save the Partnership from incurring additional
expenses associated with trying to collect from a lessee that has no apparent
ability to pay.
The Partnership is involved as plaintiff or defendant in various other legal
actions incident to its business. Management does not believe that any of these
actions will be material to the financial condition or results of operations of
the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------
No matters were submitted to a vote of the Partnership's limited partners during
the fourth quarter of its fiscal year ended December 31, 2002.
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED DEPOSITARY UNIT
-------------------------------------------------------------------
MATTERS
---
Pursuant to the terms of the partnership agreement, the General Partner is
entitled to a 1% interest in the profits, losses and distributions of the
Partnership. The General Partner is the sole holder of such interest. Special
allocations of income are made to the General Partner equal to the deficit
balance, if any, in the capital account of the General Partner. The General
Partner's annual allocation of net income will generally be equal to the General
Partner's cash distributions paid during the current year. The remaining
interests in the profits, losses and distributions of the Partnership are owned,
as of December 31, 2002, by the 4,941 unit holders in the Partnership.
There are several secondary markets that will facilitate sales and purchases of
depositary units. Secondary markets are characterized as having few buyers for
depositary units and, therefore, are generally viewed as inefficient vehicles
for the sale of depositary units. Presently, there is no public market for the
units and none is likely to develop.
The Partnership is listed on the OTC Bulletin Board under the symbol GFXPZ.
To prevent the units from being considered publicly traded and thereby to avoid
taxation of the Partnership as an association treated as a corporation under the
Internal Revenue Code, the limited partnership units will not be transferable
without the consent of the General Partner, which may be withheld in its
absolute discretion. The General Partner intends to monitor transfers of
limited partnership units in an effort to ensure that they do not exceed the
percentage or number permitted by certain safe harbors promulgated by the
Internal Revenue Service. A transfer may be prohibited if the intended
transferee is not a United States citizen or if the transfer would cause any
portion of the units of a "Qualified Plan" as defined by the Employee Retirement
Income Security Act of 1974 and Individual Retirement Accounts to exceed the
allowable limit.
ITEM 6. SELECTED FINANCIAL DATA
-------------------------
Table 2, below, lists selected financial data for the Partnership:
TABLE 2
-------
For the years ended December 31,
(In thousands of dollars, except per weighted-average depositary unit amounts)
2002 2001 2000 1999 1998
------ ------- ------- ------- ------
Operating results:
Total revenues . . . . . . . . . $5,011 $5,545 $6,669 $6,816 $ 8,366
Gain on disposition of
Equipment . . . . . . . . . . 155 98 486 156 733
Equity in net income (loss) of
unconsolidated special-
purpose entities . . . . . . . (672) (186) 1,606 2,047 (895)
Net income . . . . . . . . . . . 1,661 1,389 3,804 4,321 1,807
At year-end:
Total assets . . . . . . . . . . $6,118 $4,716 $5,497 $7,217 $13,020
Total liabilities. . . . . . . . 421 213 257 463 693
Cash distribution. . . . . . . . . $ 467 $2,126 $3,858 $3,850 $ 4,695
Special distribution . . . . . . . $ -- $ -- $1,460 $6,044 $ 3,483
Total cash distribution. . . . . . $ 467 $2,126 $5,318 $9,894 $ 8,178
Cash and special distribution
representing a return of capital
to the limited partners. . . . . $ -- $ 737 $1,514 $5,573 $ 6,560
Per weighted-average
depositary unit:
Net income . . . . . . . . . . . . $ 0.29 1 $ 0.24 1 $ 0.65 1 $0.73 1 $ 0.31 1
Cash distribution. . . . . . . . . $ 0.08 $ 0.36 $ 0.66 $ 0.66 $ 0.81
Special distribution . . . . . . . $ -- $ -- $ 0.25 $ 1.04 $ 0.60
Total cash distribution. . . . . . $ 0.08 $ 0.36 $ 0.91 $ 1.70 $ 1.41
Cash and special distribution
representing a return of capital
to the limited partners. . . . . $ -- $ 0.13 $ 0.26 $ 0.96 $ 1.13
__________________________________
1After increase of income of $12,000 ($0.00 per weighted-average depositary
unit) in 2002 representing special allocations from the General Partner. After
a decrease of income of $7,000 ($0.00 per weighted-average depositary unit) in
2001, $14,000 ($0.00 per weighted-average depositary unit) in 2000, $0.1 million
($0.01 per weighted-average depositary unit) in 1999, and $0.3 million ($0.04
per weighted-average depositary unit) in 1998 representing allocations to the
General Partner (see Note 1 to the financial statements).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-------------------------------------------------------------------
RESULTS OF OPERATIONS
-------------------
(A) Introduction
Management's discussion and analysis of financial condition and results of
operations relates to the financial statements of PLM Equipment Growth Fund (the
Partnership). The following discussion and analysis of operations focuses on
the performance of the Partnership's equipment in the various segments in which
it operates and its effect on the Partnership's overall financial condition.
(B) Results of Operations -- Factors Affecting Performance
(1) Re-leasing Activity and Repricing Exposure to Current Economic
Conditions
The exposure of the Partnership's equipment portfolio to repricing risk occurs
whenever the leases for the equipment expire or are otherwise terminated and the
equipment must be remarketed. Major factors influencing the current market rate
for the Partnership's equipment include supply and demand for similar or
comparable types of transport capacity, desirability of the equipment in the
leasing market, market conditions for the particular industry segment in which
the equipment is to be leased, overall economic conditions, and various
regulations concerning the use of the equipment. Equipment that is idle or out
of service between the expiration of one lease and the assumption of a
subsequent lease can result in a reduction of contribution to the Partnership.
The Partnership experienced re-leasing or repricing activity in 2002 across its
railcar, marine container, and marine vessel portfolios.
(a) Railcars: The relatively short duration of most leases exposes the
railcars to considerable re-leasing activity. As of December 31, 2002, the
Partnership had 77 railcars off-lease. Additional railcar leases will expire in
2003. The Partnership's railcar lease revenue declined approximately $0.6
million from 2001 to 2002. This is due to a decrease in lease revenue of $0.4
million from additional railcars off-lease in 2002, and a $0.2 million decrease
from a decline in railcar lease rates in 2002.
(b) Marine containers: The Partnership's remaining marine container
portfolio is operated in utilization-based leasing pools and, as such, is
exposed to repricing activity. The Partnership's marine container lease revenue
declined approximately $32,000 from 2001 to 2002 primarily due to the
disposition of marine containers in 2001 and 2002.
(c) Marine vessel: The marine vessel in which the Partnership owns an
interest operated in the short-term leasing market in 2002 exposing it to
repricing activity. Marine vessel lease revenues decreased $0.3 million from
2001 to 2002. A decrease of $1.1 million in lease revenue was due to increased
off-lease days in 2002, offset by an increase of $0.8 million in lease revenue
due to increased voyage charter rates compared to the same period of 2001.
(2) Equipment Liquidations
Liquidation of Partnership equipment and the Partnership's investment in an USPE
represents a reduction in the size of the equipment portfolio and may result in
reduction of contributions to the Partnership. During the year ended December
31, 2002, the Partnership sold or disposed of railcars and marine containers
with an aggregate net book value of $19,000 for net proceeds of $0.2 million.
(3) Equipment Valuation
In accordance with Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of" (SFAS No. 121), the
General Partner reviewed the carrying value of the Partnership's equipment
portfolio at least quarterly and whenever circumstances indicated that the
carrying value of an asset may not be recoverable due to expected future market
conditions. If the projected undiscounted cash flows and the fair value of the
equipment were less than the carrying value of the equipment, an impairment loss
was recorded.
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144),
which replaced SFAS No. 121. In accordance with SFAS No. 144, the Company
evaluates long-lived assets for impairment whenever events or circumstances
indicate that the carrying values of such assets may not be recoverable. Losses
for impairment are recognized when the undiscounted cash flows estimated to be
realized from a long-lived asset are determined to be less than the carrying
value of the asset and the carrying amount of long-lived assets exceed its fair
value. The determination of fair value for a given investment requires several
considerations, including but not limited to, income expected to be earned from
the asset, estimated sales proceeds, and holding costs excluding interest. The
Partnership applied the new rules on accounting for the impairment or disposal
of long-lived assets beginning January 1, 2002.
No reductions to the equipment carrying values were required for the years ended
December 31, 2002, 2001, or 2000.
(C) Financial Condition -- Capital Resources and Liquidity
The General Partner purchased the Partnership's initial equipment portfolio with
capital raised from its initial equity offering and permanent debt financing.
No further capital contributions from the original partners are permitted under
the terms of the limited partnership agreement. As of December 31, 2002, the
Partnership had no outstanding indebtedness. The Partnership relies on
operating cash flows to meet its operating obligations and make cash
distributions to the limited partners.
For the year ended December 31, 2002, the Partnership generated $2.5 million in
operating cash to meet its operating obligations and make distributions of $0.5
million to the partners.
During the year ended December 31, 2002, the Partnership disposed of railcars
and marine containers with an aggregate net book value of $19,000 for proceeds
net of commissions of $0.2 million.
The Partnership's investment in an USPE decreased $0.1 million in 2002 due to a
loss of $0.7 million being recorded on the equity interest in an USPE being
partially offset by a contribution to the USPE by the Partnership of $0.6
million.
Accounts receivable decreased $0.1 million during the year ended December 31,
2002 due to the decrease in lease revenue caused by the reduction in the size of
the equipment portfolio.
Prepaid expenses and other assets increased $0.1 million during 2002 due to the
payment of insurance and certain administrative expenses during 2002 that relate
to 2003.
Accounts payable and accrued expenses increased $0.2 million due to the due to
the timing of payments to vendors.
The General Partner has not planned any expenditures, nor is it aware of any
contingencies that would cause it to require any additional capital to that
mentioned above.
The Partnership is in its active liquidation phase. As a result, the size of
the Partnership's remaining equipment portfolio and, in turn, the amount of net
cash flows from operations will continue to become progressively smaller as
assets are sold. Significant asset sales may result in special distributions to
the partners.
The amounts reflected for assets and liabilities of the Partnership have not
been adjusted to reflect liquidation values. The equipment portfolio that is
actively being marketed for sale by the General Partner continues to be carried
at the lower of depreciated cost or fair value less cost of disposal. Although
the General Partner estimates that there will be distributions to the
Partnership after final disposal of assets and settlement of liabilities, the
amounts cannot be accurately determined prior to actual disposal of the
equipment.
(D) Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the General Partner
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On a regular basis, the General Partner reviews
these estimates including those related to asset lives and depreciation methods,
impairment of long-lived assets, allowance for doubtful accounts, and
contingencies and litigation. These estimates are based on the General
Partner's historical experience and on various other assumptions believed to be
reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions. The General Partner
believes, however, that the estimates, including those for the above-listed
items, are reasonable and that actual results will not vary significantly from
the estimated amounts.
The General Partner believes the following critical accounting policies affect
the more significant judgments and estimates used in the preparation of the
Partnership's financial statements:
Asset lives and depreciation methods: The Partnership's primary business
involves the purchase and subsequent lease of long-lived transportation and
related equipment. The General Partner has chosen asset lives that it believes
correspond to the economic life of the related asset. The General Partner has
chosen a deprecation method that it believes matches the benefit to the
Partnership from the asset with the associated costs. These judgments have been
made based on the General Partner's expertise in each equipment segment that the
Partnership operates. If the asset life and depreciation method chosen does not
reduce the book value of the asset to at least the potential undiscounted future
cash flows from the asset to the Partnership, the Partnership would be required
to record an impairment loss. 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: Whenever there is an indicator that an
impairment may exist, the General Partner reviews the carrying value of
equipment, and investment in an USPE 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 undiscounted
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 an
impairment loss.
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
disclosed if considered possible and accrued if considered probable after
consultation with counsel. If estimates of potential losses increase or the
related facts and circumstances change in the future, the Partnership may be
required to record additional litigation expense.
(E) Recent Accounting Pronouncements
On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS No.
142), was approved by the FASB. SFAS No. 142 changes the accounting for
goodwill and other intangible assets determined to have an indefinite useful
life from an amortization method to an impairment-only approach. Amortization
of applicable intangible assets will cease upon adoption of this statement. The
Partnership implemented SFAS No. 142 on January 1, 2002. SFAS No.142 had no
impact on the Partnership's financial position or results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB No. 13, and Technical Corrections" (SFAS No.
145). The provisions of SFAS No. 145 are effective for fiscal years beginning
after May 15, 2002. As permitted by the pronouncement, the Partnership has
elected early adoption of SFAS No. 145 as of January 1, 2002. SFAS No. 145 had
no impact on the Partnership's financial position or results of operations.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" (SFAS No. 146), which is based on the general
principle that a liability for a cost associated with an exit or disposal
activity should be recorded when it is incurred and initially measured at fair
value. SFAS No. 146 applies to costs associated with (1) an exit activity that
does not involve an entity newly acquired in a business combination, or (2) a
disposal activity within the scope of SFAS No. 146. These costs include certain
termination benefits, costs to terminate a contract that is not a capital lease,
and other associated costs to consolidate facilities or relocate employees.
Because the provisions of this statement are to be applied prospectively to exit
or disposal activities initiated after December 31, 2002, the effect of adopting
this statement cannot be determined.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" (FIN 45). This interpretation requires the guarantor to
recognize a liability for the fair value of the obligation at the inception of
the guarantee. The provisions of FIN 45 will be applied on a prospective basis
to guarantees issued after December 31, 2002.
In January 2003, FASB issued Interpretation No. 46, "Consolidation of Variable
Interest Entities" (FIN 46). This interpretation clarifies existing accounting
principles related to the preparation of consolidated financial statements when
the owners of an USPE do not have the characteristics of a controlling financial
interest or when the equity at risk is not sufficient for the entity to finance
its activities without additional subordinated financial support from others.
FIN 46 requires the Partnership to evaluate all existing arrangements to
identify situations where the Partnership has a "variable interest," commonly
evidenced by a guarantee arrangement or other commitment to provide financial
support, in a "variable interest entity," commonly a thinly capitalized entity,
and further determine when such variable interest requires the Partnership to
consolidate the variable interest entities' financial statements with its own.
The Partnership is required to perform this assessment by September 30, 2003 and
consolidate any variable interest entities for which the Partnership will absorb
a majority of the entities' expected losses or receive a majority of the
expected residual gains. The Partnership has determined that it is not
reasonably possible that it will be required to consolidate or disclose
information about a variable interest entity upon the effective date of FIN 46.
(F) Results of Operations -- Year-to-Year Detailed Comparison
(1) Comparison of the Partnership's Operating Results for the Years Ended
December 31, 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 year ended December 31, 2002 compared to 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 5 to the financial statements), are not
included in the owned equipment operation discussion because they are indirect
in nature and not a result of operations, but the result of owning a portfolio
of equipment. The following table presents lease revenues less direct expenses
by equipment type (in thousands of dollars):
For the Years
Ended December 31,
2002 2001
------------------
Railcars. . . . . $ 3,193 $ 3,686
Marine containers 21 54
Railcars: Railcar lease revenues and direct expenses were $4.7 million and
$1.5 million, respectively, for the year ended December 31,2002, compared to
$5.3 million and $1.6 million, respectively, for the same period of 2001. The
Partnership's railcar lease revenue declined $0.4 million due to an increase in
railcars being off-lease in 2002, and declined $0.2 million due to a decrease in
railcar lease rates in 2002. The Partnership's railcar direct costs declined
$0.1 million due to decreased repair and maintenance costs attributable to
additional railcars off-lease in 2002.
Marine containers: Marine container lease revenues were $22,000 and $0.1
million in the year ended December 31, 2002 and 2001, respectively. The
decrease of $32,000 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 $1.1 million for the year ended December 31, 2002
decreased from $2.3 million for the same period in 2001. Significant variances
are explained as follows:
(i) A $1.1 million decrease in depreciation expense from 2001 levels
reflects the effect of asset dispositions in 2001 and 2002.
(ii) A $32,000 decrease in general and administrative expenses during the
year ended December 31, 2002 compared to 2001 resulted from the reduction in the
size of the Partnership's equipment portfolio in 2002 and 2001.
(iii) A $0.1 million decrease in the provision for bad debts was due to the
collection of past due receivables during the year ended December 31, 2002 that
had been previously reserved for as bad debts. A similar collection did not
occur during the year ended December 31, 2001.
(c) Gain on Disposition of Owned Equipment
Gain on disposition of equipment in the year ended December 31, 2002 totaled
$0.2 million, and resulted from the disposition of railcars and marine
containers with an aggregate net book value of $19,000, for proceeds of $0.2
million. Gain on disposition of equipment for the year ended December 31, 2001
totaled $0.1 million and resulted from the sale of railcars and marine
containers with an aggregate net book value of $31,000, for proceeds of $0.1
million.
(d) Equity in Net Loss of an Unconsolidated Special-Purpose Entity (USPE)
Equity in net loss of an unconsolidated special-purpose entity 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 (see
Note 4 to the financial statements). This entity is a single purpose entity
that has no debt or other financial encumbrances. The equity in the net loss
the entity of the entity owning a marine vessel was $0.7 million and $0.2
million, respectively for the year ended December 31, 2002 and 2001.
The following USPE discussion is based on the Partnership's proportional share
of revenues, depreciation expense, direct expenses, and administrative expenses
in the USPE:
Marine vessel: As of December 31, 2002 and 2001 the Partnership had an
interest in an entity that owns a marine vessel. During the year ended December
31, 2002, the Partnership's share of lease revenues of $1.7 million were offset
by depreciation expense, direct expenses and administrative expenses of $2.4
million. During the same period of 2001, lease revenues of $2.0 million were
offset by depreciation, direct expenses, and administrative expenses of $2.2
million.
Marine vessel lease revenues decreased $0.3 million from 2001 to 2002. A
decrease of $1.1 million in lease revenue was due to increased off-lease days in
2002, offset by an increase of $0.8 million in lease revenue due to increased
voyage charter rates compared to the same period of 2001.
Depreciation expense, direct expenses, and administrative expenses increased
$0.1 million during the year ended December 31, 2002 compared to the same period
of 2001.
(i) An increase in direct expenses of $0.3 in the year ended December 31,
2002 was due to a $0.4 million increase in operating expenses, partially offset
by a decrease of $0.2 million due to lower repairs and maintenance expenses
compared to the same period of 2001.
(ii) A decrease in administrative expense of $0.2 million in the year ended
December 31, 2002 was due to lower management fees and administrative costs of
$0.1 million.
(e) Net Income
As a result of the foregoing, the Partnership's net income was $1.7 million for
the year ended December 31, 2002, compared to net income of $1.4 million during
the year ended December 31, 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 year ended
December 31, 2002 is not necessarily indicative of future periods. In the year
ended December 31, 2002 the Partnership distributed $0.5 million to the limited
partners, or $0.08 per weighted-average limited partnership unit.
(2) Comparison of the Partnership's Operating Results for the Years Ended
December 31, 2001 and 2000.
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating and asset-specific insurance expenses) on owned equipment
decreased during the year ended December 31, 2001, compared to the same period
of 2000. The following table presents lease revenues less direct expenses by
segment (in thousands of dollars):
For the Years
Ended December 31,
2001 2000
------------------
Railcars. . . . . $ 3,686 $ 3,949
Marine containers 54 98
Trailers. . . . . -- 192
Railcars: Railcar lease revenues and direct expenses were $5.3 million and $1.6
million, respectively, for 2001, compared to $5.6 million and $1.7 million,
respectively, during 2000. Lease revenues declined $0.2 million due to an
increase in the number of railcars off-lease compared to 2000 and declined an
additional $0.1 million due to lower re-lease rates on certain of the fleet's
tank railcars in 2001 compared to 2000. Direct expenses decreased $0.1 million
due to fewer repairs to the railcar fleet compared to 2000.
Marine containers: Marine container lease revenues and direct expenses were
$0.1 million and $-0-, respectively, for the year ended December 31, 2001,
compared to $0.1 million and $1,000, respectively, during the same period of
2000. The number of marine containers owned by the Partnership has been
declining due to dispositions. The result of this declining fleet has been a
decrease in marine container contribution.
Trailers: All the Partnership's trailers were sold in the third quarter of
2000. Trailer lease revenues and direct expenses were $0.3 million and $0.1
million, respectively, for the year ended December 31, 2000.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $2.3 million for the year ended December 31, 2001
decreased from $2.6 million for the same period of 2000. Significant variances
are explained as follows:
(i) A $0.2 million decrease in depreciation expense from 2000 levels
reflects the disposition of assets during 2001 and during 2000.
(ii) A $0.1 million decrease in management fee expense to affiliates
was due to reduced cash flows from operations in 2001 compared to the same
period in 2000.
(c) Gain on Disposition of Owned Equipment, net
Gain on disposition of equipment for the year ended December 31, 2001 totaled
$0.1 million and resulted from the sale of railcars and marine containers with
an aggregate net book value of $31,000, for proceeds of $0.1 million. Gain on
disposition of equipment for the year ended December 31, 2000, totaled $0.5
million, and resulted from the sale of marine containers, railcars, and
trailers, with an aggregate net book value of $0.6 million, for proceeds of $1.1
million.
(d) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
Equity in net income (loss) of unconsolidated special-purpose entities
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 (see Note 4 to the financial statements). These entities were a
single purpose entities that had no debt. The following table presents equity
in net income (loss) by equipment type (in thousands of dollars):
For the Years Ended
Ended December 31,
2001 2000
-------------------
Marine vessel. . . . . . . . . . . . $ (186) $ 298
Aircraft . . . . . . . . . . . . . . -- 1,308
--------- -------
Equity in net income (loss) of USPEs $ (186) $ 1,606
========= =======
The following USPE discussion by equipment type is based on the Partnership's
proportional share of revenues, depreciation expense, direct expenses, and
administrative expenses in the USPEs:
Marine vessel: During 2001, lease revenues of $2.0 million were offset by
depreciation expense, direct expenses, and administrative expenses of $2.2
million. During 2000, lease revenues of $4.0 million were offset by
depreciation expense, direct expenses, and administrative expenses of $3.7
million.
Lease revenues decreased $2.0 million in 2001 compared to 2000. Lease revenues
decreased $1.2 million due to lower lease rates in 2001 compared to 2000. A
decrease of $0.5 million was due to this marine vessel being off-lease for
approximately two months while completing its dry docking during 2001, and a
$0.3 million decrease was due to it being off-lease for an additional 1-1/2
months during 2001.
Depreciation expense, direct expenses, and administrative expenses decreased
$1.5 million during the year ended December 31, 2001 compared to the same period
of 2000. A decrease in direct expenses of $0.4 million was due to the marine
vessel incurring lower operating costs while in dry dock, $0.9 million was due
to the marine vessel incurring lower operating costs while off-lease in 2001,
and a decrease of $0.2 million was caused by lower repairs and maintenance
compared to the same period of 2000.
Aircraft: The Partnership sold its remaining interest in a trust that owned an
aircraft in the first quarter of 2000. The gain from this sale was $1.4
million, which was partially offset by depreciation expense, direct expenses,
and administrative expenses of $0.2 million.
(e) Net Income
As a result of the foregoing, the Partnership's net income was $1.4 million for
the year ended December 31, 2001, compared to net income of $3.8 million during
the year ended December 31, 2000. The Partnership's ability to operate, or
liquidate assets, secure leases, and re-lease those assets whose leases expire
is subject to many factors, and the Partnership's performance in the year ended
December 31, 2001 is not necessarily indicative of future periods. In the year
ended December 31, 2001, the Partnership distributed $2.1 million to the limited
partners, or $0.36 per weighted-average depositary unit.
(G) Geographic Information
Certain of the Partnership's equipment operates in international markets.
Although these operations expose the Partnership to certain currency, political,
credit, and economic risks, the General Partner believes these risks are minimal
or has implemented strategies to control the risks. Currency risks are at a
minimum because all invoicing, with the exception of a small number of railcars
operating in Canada, is conducted in U.S. dollars. Political risks are
minimized generally through the avoidance of operations in countries that do not
have a stable judicial system and established commercial business laws. Credit
support strategies for lessees range from letters of credit supported by U.S.
banks to cash deposits. Although these credit support mechanisms generally
allow the Partnership to maintain its lease yield, there are risks associated
with slow-to-respond judicial systems when legal remedies are required to secure
payment or repossess equipment. Economic risks are inherent in all
international markets and the General Partner strives to minimize this risk with
market analysis prior to committing equipment to a particular geographic area.
Refer to Note 6 to the financial statements for information on the revenues, net
income (loss), and net book value of equipment in various geographic regions.
Revenues and net operating income (loss) by geographic region are impacted by
the time period the asset is owned and the useful life ascribed to the asset for
depreciation purposes. Net income (loss) from equipment is significantly
impacted by depreciation charges, which are greatest in the early years of
ownership due to the use of the double-declining balance method of depreciation.
The relationships of geographic revenues, net income (loss), and net book value
of equipment are expected to significantly change in the future as assets come
off lease and decisions are made to either redeploy the assets in the most
advantageous geographic location, or sell the assets.
The Partnership's equipment on lease to the U.S. domiciled lessees consisted of
railcars. During 2002, lease revenues generated by owned equipment in the
United States accounted for 21% of the lease revenues generated by wholly and
jointly-owned equipment while this region reported net income of $0.7 million.
The Partnership's equipment leased to Canadian-domiciled lessees consists of
railcars. During 2002, lease revenue generated by owned equipment in Canada
accounted for 53% of the total lease revenues of wholly and jointly-owned
equipment and this region reported net income of $2.5 million.
The Partnership owned equipment and its ownership share in USPE's equipment on
lease to lessees operating in the rest of the world consisted of marine
containers and a 50% investment in a partnership that owns a marine vessel.
During 2002, lease revenues from the rest of the world accounted for 26% of the
total lease revenues of wholly and jointly-owned equipment and net loss of $0.7
million.
(H) Inflation
Inflation had no significant impact on the Partnership's operations during 2002,
2001, or 2000.
(I) Forward-Looking Information
Except for historical information contained herein, the discussion in this Form
10-K contains forward-looking statements that involve risks and uncertainties,
such as statements of the Partnership's plans, objectives, expectations, and
intentions. The cautionary statements made in this Form 10-K should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-K. The Partnership's actual results could differ materially
from those discussed here.
(J) Outlook for the Future
The Partnership is in its 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 certain 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.
Sale decisions may cause the operating performance of the Partnership to decline
over the remainder of its life. The liquidation phase will end on December 31,
2006, unless the Partnership is terminated earlier upon sale of all of the
equipment or by certain other events.
Several factors may affect the Partnership's operating performance in 2003 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 the year
2003 include:
1. The Partnership's fleet of marine containers is in excess of thirteen
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 2002, U.S. and Canadian freight carloads decreased 1% and 3%
respectively, compared to 2001. There has been, however, a recent increase in
some of the commodities that 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
2002. In addition, the marine vessel in which the Partnership owns an interest
was manufactured in 1975 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. In
the first quarter of 2003, the General Partner sold the marine vessel owned by
an entity in which the Partnership has an interest. The marine vessel was sold
for net proceeds of approximately $2.3 million, of which the Partnership's share
is approximately $1.1 million. The equity in income of the USPE that will be
recognized by the Partnership related to this transaction in the first quarter
of 2003 is approximately $0.9 million.
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 General Partner continually monitors
both the equipment markets and the performance of the Partnership's equipment in
these markets. The General Partner may make an evaluation to reduce the
Partnership's exposure to equipment markets in which it determines that it
cannot operate equipment and achieve acceptable rates of return.
Several other factors may affect the Partnership's operating performance in 2003
and beyond, including changes in the markets for the Partnership's equipment and
changes in the regulatory environment in which that equipment operates.
The other factors affecting the Partnership's contribution in 2003 and beyond
include:
(1) Repricing Risk
Certain of the Partnership's marine containers, railcars and its marine vessel
will be remarketed in 2003 as existing leases expire, exposing the Partnership
to repricing risk/opportunity. Additionally, the Partnership entered its
liquidation phase on January 1, 1998, and has commenced an orderly liquidation
of the Partnership's assets. The General Partner intends to re-lease or sell
equipment at prevailing market rates; however, the General Partner cannot
predict these future rates with any certainty at this time, and cannot
accurately assess the effect of such activity on future Partnership performance.
(2) Impact of Government Regulations on Future Operations
The General Partner operates the Partnership's equipment in accordance with
current applicable regulations (see Item 1, Section E, Government Regulations).
However, the continuing implementation of new or modified regulations by some of
the authorities mentioned previously, or others, may adversely affect the
Partnership's ability to continue to own or operate equipment in its portfolio.
Additionally, regulatory systems vary from country to country, which may
increase the burden to the Partnership of meeting regulatory compliance for the
same equipment operated between countries. Ongoing changes in the regulatory
environment, both in the United States and internationally, cannot be predicted
with accuracy, and preclude the General Partner from determining the impact of
such changes on Partnership operations, or sale of equipment.
The U.S. Department of Transportation's Hazardous Materials Regulations
regulates the classification and packaging requirements of hazardous materials
that apply particularly to Partnership's tank railcars. The Federal Railroad
Administration has mandated that effective July 1, 2000 all tank railcars must
be re-qualified every ten years from the last test date stenciled on each
railcar to insure tank shell integrity. Tank shell thickness, weld seams, and
weld attachments must be inspected and repaired if necessary to re-qualify the
tank railcar for service. The average cost of this inspection is $3,600 for
jacketed tank railcars and $1,800 for non-jacketed tank railcars. This does not
include any necessary repairs. This inspection is to be performed at the next
scheduled tank test and every ten years thereafter. The Partnership currently
owns 796 jacketed tank railcars and 20 non-jacketed tank railcars that will need
re-qualification. As of December 31, 2002, a total of 36 have been inspected
and no significant defects have been discovered.
(3) Distributions
During the active liquidation phase, the Partnership will use operating cash
flow and proceeds from the sale of equipment to meet its operating obligations
and, to the extent available, make distributions to the partners. In the long
term, changing market conditions and used equipment values preclude the General
Partner from accurately determining the impact of future re-leasing activity and
equipment sales on Partnership performance and liquidity.
(4) Liquidation
Liquidation of the Partnership's equipment and the Partnership's investment in
an USPE represents a reduction in the size of the equipment portfolio and may
result in a reduction of contribution to the Partnership.
Since the Partnership is in its active liquidation phase, the size of the
Partnership's remaining equipment portfolio and, in turn, the amount of net cash
flows from operations will continue to become progressively smaller as assets
are sold. Significant asset sales may result in special distributions to
unitholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------------
The Partnership's primary market risk exposure is that of currency devaluation
risk. During 2002, 79% of the Partnership's total lease revenues came from
non-United States domiciled lessees. Most of the leases require payment in 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-----------------------------------------------
The financial statements for the Partnership are listed in the Index to
Financial Statements included in Item 15(a) of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
-------------------------------------------------------------------
FINANCIAL DISCLOSURE
-----------------
(A) Disagreements with Accountants on Accounting and Financial Disclosures
None
(B) Changes in Accountants
In September 2001, the General Partner announced that the Partnership had
engaged Deloitte & Touche LLP as the Partnership's auditors and had dismissed
KPMG LLP. KPMG LLP issued an unqualified opinion on the 2000 financial
statements. During 2000 and the subsequent interim period preceding such
dismissal, there were no disagreements with KPMG LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PLM FINANCIAL SERVICES, INC.
------------------------------------------------------------------
As of the date of this annual report, the directors and executive officers of
PLM Financial Services, Inc. (and key executive officers of its subsidiaries)
are as follows:
Name Age Position
================================================================================
Gary D. Engle 53 Director, PLM Financial Services, Inc., PLM Investment
Management, Inc., and PLM Transportation Equipment Corp.
James A. Coyne 42 Director, Secretary and President, PLM Financial
Services, Inc. and PLM Investment Management, Inc.,
Director Secretary, PLM Transportation Equipment Corp.
Richard K Brock 40 Director and Chief Financial Officer, PLM Financial
Services, Inc., PLM Investment Management, Inc. and
PLM Transportation Equipment Corp.
Gary D. Engle was appointed a Director of PLM Financial Services, Inc. in
January 2002. He was appointed a director of PLM International, Inc. in
February 2001. He is a director and President of MILPI Holdings, LLC ("MILPI").
Since November 1997, Mr. Engle has been Chairman and Chief Executive Officer of
Semele Group Inc. ("Semele"), a publicly traded company. Mr. Engle is President
and Chief Executive Officer of Equis Financial Group ("EFG"), which he joined in
1990 as Executive Vice President. Mr. Engle purchased a controlling interest in
EFG in December 1994. He is also President of AFG Realty, Inc.
James A. Coyne was appointed President of PLM Financial Services Inc. in August
2002. He was appointed a Director and Secretary of PLM Financial Services, Inc.
in April 2001. He was appointed a director of PLM International, Inc. in
February 2001. He is a director, Vice President and Secretary of MILPI. Mr.
Coyne has been a director, President and Chief Operating Officer of Semele since
1997. Mr. Coyne is Executive Vice President of Equis Corporation, the general
partner of EFG. Mr. Coyne joined EFG in 1989, remained until 1993, and rejoined
in November 1994.
Richard K Brock was appointed a Director and Chief Financial Officer of PLM
Financial Services, Inc. in August 2002. From June 2001 through August 2002,
Mr. Brock was a consultant to various leasing companies including PLM Financial
Services, Inc. From October 2000 through June 2001, Mr. Brock was a Director of
PLM Financial Services, Inc. Mr. Brock was appointed Vice President and Chief
Financial Officer of PLM International, Inc. and PLM Financial Services, Inc. in
January 2000, having served as Acting Chief Financial Officer since June 1999
and as Vice President and Corporate Controller of PLM International, Inc. and
PLM Financial Services, Inc. since June 1997. Prior to June 1997, Mr. Brock
served as an accounting manager at PLM Financial Services, Inc. beginning in
September 1991 and as Director of Planning and General Accounting beginning in
February 1994.
The directors of PLM Financial Services, Inc. are elected for a one-year term or
until their successors are elected and qualified. No family relationships exist
between any director or executive officer of PLM Financial Services, Inc., PLM
Transportation Equipment Corp., or PLM Investment Management, Inc.
ITEM 11. EXECUTIVE COMPENSATION
-----------------------
The Partnership has no directors, officers, or employees. The Partnership had
no pension, profit sharing, retirement, or similar benefit plan in effect as of
December 31, 2002.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------
(A) Security Ownership of Certain Beneficial Owners
The General Partner is entitled to a 1% interest in the profits and losses
(subject to certain allocations of income) and distributions of the Partnership.
As of December 31, 2002, no investor was known by the General Partner to
beneficially own more than 5% of the depositary units of the Partnership.
(B) Security Ownership of Management
Neither the General Partner and its affiliates nor any executive officer or
director of the General Partner and its affiliates own any depositary units of
the Partnership as of December 31, 2002.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------
(A) Transactions with Management and Others
During 2002, management fees to IMI were $0.3 million. During 2002, the
Partnership reimbursed FSI or its affiliates $0.2 million for administrative
services and data processing expenses performed on behalf of the Partnership.
During 2002, the USPE, partially owned by the Partnership, paid FSI or its
affiliates $0.1 million for administrative and data processing services.
Management fees of $0.1 million were received by the USPE in 2002.
The balance due to affiliates as of December 31, 2002 and 2001 includes $36,000
and $19,000, respectively, due to FSI and its affiliates for management fees.
ITEM 14. CONTROLS AND PROCEDURES
-------------------------
Based on their evaluation as of a date within 90 days of the filing of this Form
10-K, the Partnership's principal Executive Officer and Chief Financial Officer
have concluded that the Partnership's disclosure controls and procedures are
effective to ensure that information required to be disclosed in the reports
that the Partnership files or submits under the Securities Exchange Act of 1934
is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms. There
have been no significant changes in the Partnership's internal controls or in
other factors that could significantly affect those controls subsequent to the
date of their evaluation.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
------------------------------------------------------------------
(A) 1. Financial Statements
The financial statements listed in the accompanying Index to Financial
Statements are filed as part of this Annual Report on Form 10-K.
2. Financial Statements required under Regulation S-X Rule 3-09.
The following financial statements are filed as an exhibit of the Annual Report
on Form 10-K:
a. Clement Partnership
(B) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
All other financial statement schedules have been omitted, as the
required information is not pertinent to the registrant or is not material, or
because the information is included in the financial statements and notes
thereto.
(C) Reports on Form 8-K
None.
(D) Exhibits
4. Limited Partnership Agreement of Registrant, incorporated by reference to
the Partnership's Registration Statement on Form S-1 (Reg. No. 33-2834), which
became effective with the Securities and Exchange Commission on May 20, 1986.
4.1 Amendment, dated November 18, 1991, to Limited Partnership Agreement of
Partnership, incorporated by reference to the Partnership's Annual Report on
Form 10-K filed with the Securities and Exchange Commission on March 30,1993.
10.1 Management Agreement between Registrant and PLM Investment Management,
Inc., incorporated by reference to the Partnership's Registration Statement on
Form S-1 (Reg. No. 33-2834), which became effective with the Securities and
Exchange Commission on May 20, 1986.
Financial Statements required under Regulation S-X Rule 3-09:
99.1 Clement Partnership
- ------
CONTROL CERTIFICATION
- ----------------------
I, James A. Coyne, certify that:
1. I have reviewed this annual report on Form 10-K of PLM Equipment Growth
Fund.
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officer and I am 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 annual 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 annual
report (the "Evaluation Date"); and
c) presented in this annual 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
annual 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: March 26, 2003 By: /s/ James A. Coyne
---------------------
James A. Coyne
President
(Principal Executive Officer)
CONTROL CERTIFICATION
- ----------------------
I, Richard K Brock, certify that:
1. I have reviewed this annual report on Form 10-K of PLM Equipment Growth
Fund.
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officer and I am 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 annual 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 annual
report (the "Evaluation Date"); and
c) presented in this annual 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
annual 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: March 26, 2003 By: /s/ Richard K Brock
----------------------
Richard K Brock
Chief Financial Officer
(Principal Financial Officer)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
The Partnership has no directors or officers. The General Partner has signed on
behalf of the Partnership by duly authorized officers.
Dated: March 26, 2003 PLM EQUIPMENT GROWTH FUND
PARTNERSHIP
By: PLM Financial Services, Inc.
General Partner
By: /s/ James A. Coyne
---------------------
James A. Coyne
President
By: /s/ Richard K Brock
----------------------
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 Annual Report
of the Partnership on Form 10-K for the year ended December 31, 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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following directors of the Partnership's General
Partner on the dates indicated.
Name Capacity Date
- ---- -------- ----
/s/ Gary D. Engle_________
- -----------------------------
Gary D. Engle Director, FSI March 26, 2003
/s/ James A. Coyne_______
- ----------------------------
James A. Coyne Director, FSI March 26, 2003
/s/ Richard K Brock______
- ----------------------
Richard K Brock Director, FSI March 26, 2003
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
INDEX TO FINANCIAL STATEMENTS
(Item 15(a))
Page
----
Independent auditors' reports 25-26
Balance sheets as of December 31, 2002 and 2001 27
Statements of income for the years ended December 31,
2002, 2001, and 2000 28
Statements of changes in partners' capital for the years
ended December 31, 2002, 2001, and 2000 29
Statements of cash flows for the years ended December 31,
2002, 2001, and 2000 30
Notes to financial statements 31-42
Independent auditors' reports on financial statement schedule 43-44
Schedule II valuation and qualifying accounts 45
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund:
We have audited the accompanying balance sheets of PLM Equipment Growth Fund
(the "Partnership"), as of December 31, 2002 and 2001, and the related
statements of income, changes in partners' capital, and cash flows for the years
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Partnership as of December 31, 2002 and
2001, and the results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.
As described in Note 1 to the financial statements, the Partnership, in
accordance with the limited partnership agreement, entered its liquidation phase
on January 1, 1998 and has commenced an orderly liquidation of the Partnership
assets. The Partnership will terminate on December 31, 2006, unless terminated
earlier upon the sale of all equipment or by certain other events.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Tampa, Florida
March 7, 2003
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund:
We have audited the accompanying statements of income, changes in partners'
capital and cash flows of PLM Equipment Growth Fund ("the Partnership") for the
year ended December 31, 2000. These financial statements are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
As described in Note 1 to the financial statements, PLM Equipment Growth Fund,
in accordance with the limited partnership agreement, entered its liquidation
phase on January 1, 1998 and has commenced an orderly liquidation of the
Partnership assets. The Partnership will terminate on December 31, 2006, unless
terminated earlier upon sale of all equipment or by certain other events.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and its cash flows of PLM
Equipment Growth Fund for the year ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
SAN FRANCISCO, CALIFORNIA
March 12, 2001
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31,
(in thousands of dollars, except unit amounts)
2002 2001
===================
ASSETS
Equipment held for operating leases, at cost . . . . . . . $ 20,885 $ 21,601
Less accumulated depreciation. . . . . . . . . . . . . . . (20,643) (21,213)
--------- ---------
Net equipment. . . . . . . . . . . . . . . . . . . . . 242 388
Cash and cash equivalents. . . . . . . . . . . . . . . . . 4,935 3,354
Accounts receivable, less allowance for doubtful accounts
of $72 in 2002 and $124 in 2001. . . . . . . . . . . 254 314
Investment in an unconsolidated special-purpose entity . . 579 630
Prepaid expenses and other assets. . . . . . . . . . . . . 108 30
--------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . $ 6,118 $ 4,716
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses. . . . . . . . . . . $ 379 $ 182
Due to affiliates. . . . . . . . . . . . . . . . . . . . . 36 19
Lessee deposits. . . . . . . . . . . . . . . . . . . . . . 6 12
--------- ---------
Total liabilities. . . . . . . . . . . . . . . . . . . . 421 213
--------- ---------
Commitments and contingencies
Partners' capital:
Limited partners (5,784,275 depositary units as of
December 31, 2002 and 2001). . . . . . . . . . . . . . 5,697 4,503
General Partner. . . . . . . . . . . . . . . . . . . . . . -- --
--------- ---------
Total partners' capital. . . . . . . . . . . . . . . . . 5,697 4,503
--------- ---------
Total liabilities and partners' capital. . . . . . . $ 6,118 $ 4,716
========= =========
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
(in thousands of dollars, except weighted-average unit amounts)
2002 2001 2000
========================
REVENUES
Lease revenue . . . . . . . . . . . . . . . . . . . . . . . . . . $4,706 $5,321 $6,019
Interest and other income . . . . . . . . . . . . . . . . . . . . 150 126 164
Gain on disposition of equipment. . . . . . . . . . . . . . . . . 155 98 486
-------- ------- ------
Total revenues. . . . . . . . . . . . . . . . . . . . . . . . . 5,011 5,545 6,669
-------- ------- ------
EXPENSES
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . 155 1,213 1,408
Repairs and maintenance . . . . . . . . . . . . . . . . . . . . . 1,461 1,561 1,764
Insurance expense . . . . . . . . . . . . . . . . . . . . . . . . 95 131 54
Management fees to affiliate. . . . . . . . . . . . . . . . . . . 289 280 357
General and administrative expenses to affiliate. . . . . . . . . 150 286 218
Other general and administrative expenses . . . . . . . . . . . . 580 476 572
(Recovery of) provision for bad debts . . . . . . . . . . . . . . (52) 23 98
-------- ------- ------
Total expenses. . . . . . . . . . . . . . . . . . . . . . . . . 2,678 3,970 4,471
-------- ------- ------
Equity in net income (loss) of unconsolidated
special-purpose entities. . . . . . . . . . . . . . . . . . . (672) (186) 1,606
-------- ------- ------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $1,661 $1,389 $3,804
======== ======= ======
PARTNERS' SHARE OF NET INCOME
Limited partners. . . . . . . . . . . . . . . . . . . . . . . . . $1,656 $1,368 $3,751
General partner . . . . . . . . . . . . . . . . . . . . . . . . . 5 21 53
-------- ------- ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,661 $1,389 $3,804
======== ======= ======
Limited partners' net income per weighted-average depositary unit $ 0.29 $ 0.24 $ 0.65
======== ======= ======
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
(in thousands of dollars)
Limited General
Partners Partner Total
===============================
Partners' capital as of December 31, 1999 $ 6,754 $ -- $ 6,754
Net income. . . . . . . . . . . . . . . . . 3,751 53 3,804
Cash distribution . . . . . . . . . . . . . (3,819) (39) (3,858)
Special distribution. . . . . . . . . . . . (1,446) (14) (1,460)
---------- --------- --------
Partners' capital as of December 31, 2000 5,240 -- 5,240
Net income. . . . . . . . . . . . . . . . . 1,368 21 1,389
Cash distribution . . . . . . . . . . . . . (2,105) (21) (2,126)
---------- --------- --------
Partners' capital as of December 31, 2001 4,503 -- 4,503
Net income. . . . . . . . . . . . . . . . . 1,656 5 1,661
Cash distribution . . . . . . . . . . . . . (462) (5) (467)
---------- --------- --------
Partners' capital as of December 31, 2002 $ 5,697 $ -- $ 5,697
========== ========= ========
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(in thousands of dollars)
2002 2001 2000
===========================
OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . $1,661 $ 1,389 $ 3,804
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . 155 1,213 1,408
Gain on disposition of equipment. . . . . . . . . . . . . . (155) (98) (486)
Equity in net (income) loss of unconsolidated special-
purpose entities. . . . . . . . . . . . . . . . . . . . 672 186 (1,606)
Changes in operating assets and liabilities:
Accounts receivable, net. . . . . . . . . . . . . . . . . 60 (111) 162
Prepaid expenses and other assets . . . . . . . . . . . . (78) 8 --
Accounts payable and accrued expenses . . . . . . . . . . 197 (37) (118)
Due to affiliates . . . . . . . . . . . . . . . . . . . . 17 (17) (27)
Lessee deposits . . . . . . . . . . . . . . . . . . . . . (6) 10 (61)
-------- -------- --------
Net cash provided by operating activities . . . . . . . 2,523 2,543 3,076
-------- -------- --------
INVESTING ACTIVITIES
Payments for capital improvements . . . . . . . . . . . . . . (28) -- --
Liquidation of investment in equipment placed in
unconsolidated special-purpose entities . . . . . . . . . -- -- 1,769
(Contributions to) distribution from unconsolidated special-
purpose entities. . . . . . . . . . . . . . . . . . . . . (621) 212 564
Proceeds from disposition of equipment. . . . . . . . . . . . 174 129 1,059
-------- -------- --------
Net cash (used in) provided by investing activities . . (475) 341 3,392
-------- -------- --------
FINANCING ACTIVITIES
Cash distribution paid to limited partners. . . . . . . . . . (462) (2,105) (3,819)
Cash distribution paid to General Partner . . . . . . . . . . (5) (21) (39)
Special distribution paid to limited partners . . . . . . . . -- -- (1,446)
Special distribution paid to General Partner. . . . . . . . . -- -- (14)
-------- -------- --------
Net cash used in financing activities. . . . . . . . . . (467) (2,126) (5,318)
-------- -------- --------
Net increase in cash and cash equivalents . . . . . . . . . . 1,581 758 1,150
Cash and cash equivalents at beginning of year. . . . . . . . 3,354 2,596 1,446
-------- -------- --------
Cash and cash equivalents at end of year. . . . . . . . . . . $4,935 $ 3,354 $ 2,596
======== ======== ========
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
-----------------------
Organization
- ------------
PLM Equipment Growth Fund, a California limited partnership (the Partnership),
was formed on January 28, 1986. The Partnership engages primarily in the
business of owning, leasing, or otherwise investing in predominantly used
transportation and related equipment. PLM Financial Services, Inc. (FSI) is the
General Partner of the Partnership. FSI is a wholly owned subsidiary of PLM
International, Inc. (PLM International).
The Partnership, in accordance with its limited partnership agreement, entered
its liquidation phase on January 1, 1998, and has commenced an orderly
liquidation of the Partnership's assets (see Note 10). 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 after payment of operating expenses, if any, are to be used for
distributions to partners, except to the extent used to maintain reasonable
reserves. During the liquidation phase, the Partnership's assets will continue
to be recorded at the lower of the carrying amount or fair value less cost to
sell.
FSI manages the affairs of the Partnership. The cash distributions of the
Partnership are generally allocated 99% to the limited partners and 1% to the
General Partner (see Net Income and Distributions per Depositary Unit, below).
Net income is allocated to the General Partner to the extent necessary to cause
the General Partner's capital account to equal zero. The General Partner is
entitled to a subordinated incentive fee equal to 15% of surplus distributions,
as defined in the limited partnership agreement, remaining after the limited
partners have received a certain minimum rate of return. The General Partner
does not anticipate that this fee will be earned.
Estimates
- ---------
The accompanying financial statements have been prepared on the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States of America. This requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Operations
- ----------
The equipment of the Partnership is managed, under a continuing management
agreement, by PLM Investment Management, Inc. (IMI), a wholly owned subsidiary
of FSI. IMI receives a monthly management fee from the Partnership for managing
the equipment (see Note 2). FSI, in conjunction with its subsidiaries, sells
equipment to investor programs and third parties, manages pools of equipment
under agreements with the investor programs, and is a general partner of other
programs.
Accounting for Leases
- -----------------------
The Partnership's leasing operations generally consist of operating leases.
Under the operating lease method of accounting, the lessor records the leased
asset at cost and depreciates the leased asset over its estimated useful life.
Rental payments are recorded as revenue over the lease term as earned in
accordance with Statement of Financial Accounting Standards (SFAS) No. 13,
"Accounting for Leases" (SFAS No. 13). Lease origination costs are capitalized
and amortized over the term of the lease.
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation (continued)
------------------------------------
Depreciation
- ------------
Depreciation of transportation equipment held for operating leases is computed
on the double-declining balance method, taking a full month's depreciation in
the month of acquisition, based upon estimated useful lives of 15 years for
railcars and 12 years for other types of equipment. The depreciation method
changes to straight-line when annual depreciation expense using the
straight-line method exceeds that calculated by the double-declining balance
method. Acquisition fees have been capitalized as part of the cost of the
equipment. Major expenditures that are expected to extend the useful lives or
reduce future operating expenses of equipment are capitalized and amortized over
the remaining life of the equipment.
Transportation Equipment
- -------------------------
Equipment held for operating leases is stated at cost.
In accordance with SFAS No. 121, "Accounting For the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed of" (SFAS No. 121), the General
Partner reviewed the carrying value of the Partnership's equipment portfolio at
least quarterly and whenever circumstances indicated that the carrying value of
an asset would not be recoverable due to expected future market conditions. If
the projected undiscounted cash flows and the fair value of the equipment were
less than the carrying value of the equipment, an impairment loss was recorded.
In October 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No.
144), which replaces SFAS No. 121. In accordance with SFAS No. 144, the Company
evaluates long-lived assets for impairment whenever events or circumstances
indicate that the carrying values of such assets may not be recoverable. Losses
for impairment are recognized when the undiscounted cash flows estimated to be
realized from a long-lived asset are determined to be less than the carrying
value of the asset and the carrying amount of long-lived assets exceed its fair
value. The determination of fair value for a given investment requires several
considerations, including but not limited to, income expected to be earned from
the asset, estimated sales proceeds, and holding costs excluding interest. The
Partnership applied new rules on accounting for the impairment or disposal of
long-lived assets beginning January 1, 2002.
No reductions were required to the carrying value of the equipment during 2002,
2001, or 2000.
Investment in an Unconsolidated Special-Purpose Entity
- -----------------------------------------------------------
The Partnership has an interest in an USPE that owns a marine vessel. This is a
single purpose entity that does not have any debt. This interest is accounted
for using the equity method.
The Partnership's investment in an USPE includes acquisition and lease
negotiation fees paid by the Partnership to PLM Transportation Equipment
Corporation (TEC), a wholly-owned subsidiary of FSI. The Partnership's interest
in the USPE is managed by IMI. The Partnership's equity interest in the net
income (loss) of USPEs is reflected net of management fees paid or payable to
IMI and the amortization of acquisition and lease negotiation fees paid to TEC.
Repairs and Maintenance
- -------------------------
Repairs and maintenance costs to railcars, marine vessels, and trailers are
usually the obligation of the Partnership. Maintenance costs for the marine
containers are the obligation of the lessee. If they are not covered by the
lessee, they are generally charged against operations as incurred.
------
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation (continued)
------------------------------------
Net Income and Distributions Per Depositary Unit
- ------------------------------------------------------
Cash distributions are allocated 99% to the limited partners and 1% to the
General Partner and may include amounts in excess of net income. The limited
partners' net income is allocated among the limited partners based on the number
of limited partnership units owned by each limited partner and on the number of
days of the year each limited partner is in the Partnership. During 2002, the
General Partner received a special allocation of $-0-. During 2002, the General
Partner received a special loss allocation of $12,000 to bring its capital
account to zero. During 2001 and 2000, the General Partner received a special
allocation of income of $7,000 and $14,000, respectively.
Cash distributions are recorded when declared. Cash distributions are paid in
the same quarter they are declared. For the years ended December 31, 2002, 2001
and 2000, cash distributions totaled $0.5 million, $2.1 million, and $3.9
million, respectively, or $0.08, $0.36 and $0.66 per weighted-average depositary
unit, respectively.
The Partnership declared and paid a special distribution of $1.5 million during
2000, or $0.25 per weighted-average depositary unit. No special distributions
were paid during 2002 or 2001.
Cash distributions of $1.0 million for the year ended December 31, 2000, were
declared and paid in 2001.
There were no cash distributions for the year ended December 31, 2002 or 2001
paid in 2003 or 2002.
Cash distributions to investors in excess of net income are considered a return
of capital. Cash distributions to the limited partners of $0.7 million and $1.5
million in 2001 and 2000, respectively, were deemed to be a return of capital.
None of the cash distributions paid to the limited partners during 2002 were
deemed a return of capital.
Net Income Per Weighted-Average Depositary Unit
- ----------------------------------------------------
Net income per weighted-average depositary unit was computed by dividing net
income attributable to limited partners by the weighted-average number of
depositary units deemed outstanding during the period. The weighted-average
number of depositary units deemed outstanding during the years ended December
31, 2002, 2001, and 2000 were 5,784,275.
Cash and Cash Equivalents
- ----------------------------
The Partnership considers highly liquid investments that are readily convertible
to known amounts of cash with original maturities of three months or less as
cash equivalents. The carrying amount of cash equivalents approximates fair
value due to the short-term nature of the investments.
Comprehensive Income
- ---------------------
The Partnership's net income was equal to comprehensive income for the years
ended December 31, 2002, 2001, and 2000.
New Accounting Standards
- --------------------------
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" (SFAS No. 146), which is based on the general
principle that a liability for a cost associated with an exit or disposal
activity should be recorded when it is incurred and initially measured at fair
value. SFAS No. 146 applies to costs associated with (1) an exit activity that
does not involve an entity newly acquired in a business combination, or (2) a
disposal activity within the scope of SFAS No. 146. These costs include certain
termination benefits, costs to terminate a contract that is not a capital lease,
and other associated costs to consolidate facilities or relocate employees.
Because the provisions of this statement are to be applied prospectively to exit
or disposal activities initiated after December 31, 2002, the effect of adopting
this statement cannot be determined.
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation (continued)
------------------------------------
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" (FIN 45). This interpretation requires the guarantor to
recognize a liability for the fair value of the obligation at the inception of
the guarantee. The provisions of FIN 45 will be applied on a prospective basis
to guarantees issued after December 31, 2002.
In January 2003, FASB issued Interpretation No. 46, "Consolidation of Variable
Interest Entities" (FIN 46). This interpretation clarifies existing accounting
principles related to the preparation of consolidated financial statements when
the owners of an USPE do not have the characteristics of a controlling financial
interest or when the equity at risk is not sufficient for the entity to finance
its activities without additional subordinated financial support from others.
FIN 46 requires the Partnership to evaluate all existing arrangements to
identify situations where the Partnership has a "variable interest," commonly
evidenced by a guarantee arrangement or other commitment to provide financial
support, in a "variable interest entity," commonly a thinly capitalized entity,
and further determine when such variable interest requires the Partnership to
consolidate the variable interest entities' financial statements with its own.
The Partnership is required to perform this assessment by September 30, 2003 and
consolidate any variable interest entities for which the Partnership will absorb
a majority of the entities' expected losses or receive a majority of the
expected residual gains. The Partnership has determined that it is not
reasonably possible that it will be required to consolidate or disclose
information about a variable interest entity upon the effective date of FIN 46.
2. Transactions with General Partner and Affiliates
-----------------------------------------------------
An officer of FSI contributed $100 of the Partnership's initial capital. Under
the equipment management agreement, IMI receives a monthly management fee
attributable to either owned equipment or interests in equipment owned by the
USPEs equal to the greater of (i) 10% of cash flows or (ii) 1/12 of 1/2% of the
net book value of the equipment portfolio subject to a reduction in certain
adjustments. The Partnership management fee in 2002, 2001 and 2000 was equal to
10% of cash flows and was $0.3 million, $0.3 million and $0.4 million,
respectively. Partnership management fees of $36,000 and $19,000, respectively,
were payable as of December 31, 2002, and 2001. The Partnership reimbursed FSI
and its affiliates $0.2 million, $0.3 million and $0.2 million in 2002, 2001 and
2000, respectively, for data processing expenses and administrative services
performed on behalf of the Partnership.
The Partnership's proportional share of USPE management fees to affiliate were
($0.1 million), $14,000, and $0.1 million during 2002, 2001, and 2000,
respectively, and the Partnership's proportional share of administrative and
data processing expenses to affiliate were $0.1 million, $0.1 million, and
$37,000 during 2002, 2001, and 2000, respectively. These affiliate expenses
reduced the Partnership's proportional share of the equity interest in income of
USPEs.
The Partnership owns certain equipment in conjunction with affiliated programs
(see Note 4).
3. Equipment
---------
Owned equipment held for operating leases is stated at cost. The components of
owned equipment as of December 31, are as follows (in thousands of dollars):
Equipment held for operating leases 2002 2001
=================================== ========= =========
Railcars. . . . . . . . . . . . . . $ 20,516 $ 21,016
Marine containers . . . . . . . . . 369 585
--------- ---------
20,885 21,601
Less accumulated depreciation . . . (20,643) (21,213)
--------- ---------
Net equipment . . . . . . . . . . $ 242 $ 388
========= =========
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
3. Equipment (continued)
----------------------
Revenues are earned by placing equipment under operating leases. The
Partnership's marine containers are leased to operators of utilization-type
leasing pools that include equipment owned by unaffiliated parties. In such
instances, revenues received by the Partnership consist of a specified
percentage of revenues generated by leasing the equipment to sublessees, after
deducting certain direct operating expenses of the pooled equipment. Rental
revenues for railcars are based on fixed rates.
As of December 31, 2002, all owned equipment in the Partnership's portfolio was
on lease except for 77 railcars with an aggregate net book value of $46,000. As
of December 31, 2001, all owned equipment in the Partnership's portfolio was on
lease except for 30 railcars with an aggregate net book value of $38,000.
During 2002, the General Partner disposed of railcars and marine containers with
a net book value of $19,000 for proceeds of $0.2 million. During 2001, the
General Partner disposed of marine containers and railcars owned by the
Partnership, with an aggregate net book value of $31,000 for proceeds of $0.1
million.
There were no reductions to the carrying values of equipment in 2002, 2001, or
2000.
All owned and partially owned USPE equipment on lease are being accounted for as
operating leases. Future minimum rentals under noncancelable operating leases
as of December 31, 2002 and during each of the next five years are $3.7 million
in 2003, $2.9 million in 2004, $1.9 million in 2005, $1.0 million in 2006, $0.4
million in 2007 and $0.3 million thereafter. Per diem and short-term rentals
consisting of utilization rate lease payments included in revenue amounted to
$22,000, $0.1 million and $0.4 million in 2002, 2001, and 2000, respectively.
4. Investments in Unconsolidated Special-Purpose Entities
----------------------------------------------------------
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 USPEs. The Partnership's proportional share of equity
and income (loss) in each 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 which vary among
the owners of the USPEs.
The tables below set forth 100% of the assets, liabilities, and equity of the
Clement Partnership in which the Partnership has an interest and the
Partnership's proportional share of equity in the entity as of December 31, 2002
and 2001 (in thousands of dollars):
December 31, December 31,
2002 2001
- -------------------------------------------------------------------------
Assets
Equipment less accumulated depreciation $ 546 $ 1,239
Receivables . . . . . . . . . . . . . . 745 302
------------- -------------
Total assets. . . . . . . . . . . . . $ 1,291 $ 1,541
============= =============
Liabilities
Accounts payable. . . . . . . . . . . . $ 173 $ 248
Due to affiliates . . . . . . . . . . . 11 48
------------- -------------
Total liabilities . . . . . . . . . . 184 296
Equity. . . . . . . . . . . . . . . . . . 1,107 1,245
------------- -------------
Total liabilities and equity. . . . . . $ 1,291 $ 1,541
============= =============
Partnership's share of equity . . . . . . . $ 579 $ 630
============= =============
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
4. Investments in Unconsolidated Special-Purpose Entities (continued)
-----------------------------------------------------------------------
The table below sets forth 100% of the lease revenues, direct and indirect
expenses and net income (loss) of the entities in which the Partnership has an
interest and the Partnership's proportional share of income (loss) in each
entity for the years ended December 31, 2002, 2001, and 2000 (in thousands of
dollars):
For the year ended Clement
December 31, 2002 Partnership 1
- -------------------------------------------------
Revenues . . . . . . . . . . . . $ 3,335
Less: Direct expenses. . . . . . 4,034
Indirect expenses . . . 781
---------------
Net income (loss). . . . . . (1,480)
===============
Partnership's share of net loss. (672)
===============
Boeing 767
For the year ended Clement Tenancy in
December 31, 2001 Partnership 1 Common 2 Total
- -----------------------------------------------------------------------
Revenues . . . . . . . . . . . . $ 4,100 $ --
Less: Direct expenses. . . . . . 3,509 --
Indirect expenses . . . 1,046 5
--------------- ------------
Net income (loss). . . . . . $ (455) $ (5)
=============== ============
Partnership's share of net loss. $ (183) $ (3) $ (186)
=============== ============ =======
East West
Boeing 767 925
For the year ended Clement Tenancy in Tenancy in
December 31, 2000 Partnership 1 Common 2 Common 3 Total
Revenues $ 8,073 $ -- $ 1
Gain on disposition of equipment -- -- 2,861
Less: Direct expenses 6,428 -- 74
Indirect expenses 1,150 (56) 183
------------- ---------- ---------
Net income $ 495 $ 56 $ 2,605
============= ========== =========
Partnership's share of net income $ 298 $ 7 $ 1,301 $ 1,606
============= ========== ========= =======
As of December 31, 2002 and December 31, 2001, the jointly-owned equipment in
the Partnership's USPE portfolio was on lease.
1 The Partnership owns a 50% interest in the Clement Partnership that owns a
product tanker.
2 The Partnership owned a 12% interest in the Boeing 767 Tenancy in Common
that owned a stage III commercial aircraft.
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
5. Operating Segments
-------------------
The Partnership operates or operated in five primary operating segments:
aircraft leasing, marine container leasing, marine vessel leasing, trailer
leasing, and railcar leasing. Each equipment-leasing segment engages in
short-term to mid-term operating leases to a variety of customers.
The General Partner evaluates the performance of each segment based on profit or
loss from operations before allocation of general and administrative expenses,
and certain other expenses. The segments are managed separately due to
different business strategies for each operation. The accounting policies of
the Partnership's operating segments are the same as described in Note 1, Basis
of Presentation. There were no intersegment revenues for the years ended
December 31, 2002, 2001 and 2000.
The following tables present a summary of the operating segments (in thousands
of dollars):
Marine Marine
Container Vessel Railcar All
For the Year Ended December 31, 2002 Leasing Leasing Leasing Other 1 Total
- ------------------------------------------------------------------------------------------
REVENUES
Lease revenue $ 22 $ -- $ 4,684 $ -- $ 4,706
Interest income and other -- -- 79 71 150
Gain on disposition of equipment 13 -- 142 -- 155
---------- --------- --------- -------- -------
Total revenues 35 -- 4,905 71 5,011
---------- --------- --------- -------- -------
EXPENSES
Operations support 1 -- 1,491 64 1,556
Depreciation 24 -- 131 -- 155
Management fees to affiliates -- -- -- 289 289
General and administrative expenses -- -- 229 501 730
Recovery of bad debts -- -- (52) -- (52)
---------- --------- --------- -------- -------
Total expenses 25 -- 1,799 854 2,678
---------- --------- --------- -------- -------
Equity in net loss of USPE -- (672) -- -- (672)
---------- --------- --------- -------- -------
Net income (loss) $ 10 $ (672) $ 3,106 $ (783) $ 1,661
========== ========= ========= ======== =======
Total assets as of December 31, 2002 $ 579 $ 41 $ 455 $ 5,043 $ 6,118
========== ========= ========= ======== =======
1 Includes certain assets not identifiable to a specific segment, such as
cash and prepaid expenses. Also includes interest income and costs not
identifiable to a particular segment, such as management fees to affiliates, and
certain operations support and general and administrative expenses.
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
5. Operating Segments (continued)
--------------------------------
Marine Marine
Container Vessel Railcar All
For the Year Ended December 31, 2001 Leasing Leasing Leasing Other 1 Total
- ----------------------------------------------------------------------------------------------
REVENUES
Lease revenue. . . . . . . . . . . . . . $ 54 $ -- $ 5,267 $ -- $5,321
Interest income and other. . . . . . . . -- -- 22 104 126
Gain (loss) on disposition of equipment. -- -- 108 (10) 98
---------- --------- -------- --------- -------
Total revenues. . . . . . . . . . . . 54 -- 5,397 94 5,545
---------- --------- -------- --------- -------
EXPENSES
Operations support . . . . . . . . . . . -- 2 1,581 109 1,692
Depreciation . . . . . . . . . . . . . . 33 -- 1,180 -- 1,213
Management fees to affiliates. . . . . . -- -- -- 280 280
General and administrative expenses. . . 1 13 154 594 762
Provision for (recovery of) bad debts. . -- -- 62 (39) 23
---------- --------- -------- --------- -------
Total expenses. . . . . . . . . . . . 34 15 2,977 944 3,970
---------- --------- -------- --------- -------
Equity in net loss of USPEs. . . . . . . . -- (183) -- (3) (186)
---------- --------- -------- --------- -------
Net income (loss). . . . . . . . . . . . . $ 20 $ (198) $ 2,420 $ (853) $1,389
========== ========= ======== ========= =======
Total assets as of December 31, 2001 . . . $ 101 $ 630 $ 601 $ 3,384 $4,716
========== ========= ======== ========= =======
Marine Marine
Aircraft Container Vessel Trailer Railcar All
For the Year Ended December 31, 2000 Leasing Leasing Leasing Leasing Leasing Other 2 Total
- -----------------------------------------------------------------------------------------------------------
REVENUES
Lease revenue. . . . . . . . . . . . . $ -- $ 99 $ -- $ 273 $ 5,647 $ -- $ 6,019
Interest income and other. . . . . . . -- -- -- -- -- 164 164
Net gain (loss) on disposition of
equipment . . . . . . . . . . . . . 35 (43) -- 473 21 -- 486
-------- -------- -------- -------- -------- ------ -------
Total revenues. . . . . . . . . . . 35 56 -- 746 5,668 164 6,669
-------- -------- -------- -------- -------- ------ -------
EXPENSES
Operations support . . . . . . . . . . -- 1 -- 81 1,698 38 1,818
Depreciation . . . . . . . . . . . . . -- 55 -- 61 1,292 -- 1,408
Management fees to affiliate . . . . . -- -- -- -- -- 357 357
General and administrative expenses. . 5 1 2 91 154 537 790
Provision for (recovery of) bad debts. -- -- -- 16 84 (2) 98
-------- -------- -------- -------- -------- ------ -------
Total costs and expenses. . . . . . 5 57 2 249 3,228 930 4,471
-------- -------- -------- -------- -------- ------ -------
Equity in net income of USPEs. . . . . . 1,308 -- 298 -- -- -- 1,606
-------- -------- -------- -------- -------- ------ -------
Net income (loss). . . . . . . . . . . . $ 1,338 $ (1) $ 296 $ 497 $ 2,440 $(766) $ 3,804
======== ======== ======== ======== ======== ====== =======
1. Includes certain assets not identifiable to a specific segment, such as
cash and prepaid expenses. Also includes interest income and costs not
identifiable to a particular segment, such as management fees to affiliates, and
certain operations support and general and administrative expenses.
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 FINANCIAL STATEMENTS
6. Geographic Information
-----------------------
The Partnership owns certain equipment that is leased and operated
internationally. A limited number of the Partnership's transactions are
denominated in a foreign currency. Gains or losses resulting from foreign
currency transactions are included in the results of operations and are not
material.
The Partnership leases or leased its aircraft, railcars, and trailers to lessees
domiciled in four geographic regions: the United States, Canada, and South
America. Marine containers and marine vessels are leased to multiple lessees in
different regions who operate worldwide.
The table below sets forth lease revenues by geographic region for the
Partnership's owned equipment and investments in USPEs grouped by domicile of
the lessee as of and for the years ended December 31, (in thousands of dollars):
Owned Equipment Investments in USPEs
------------------------------- ------------------------------
Region 2002 2001 2000 2002 2001 2000
=============================== ==============================
United States . . . $ 1,342 $ 1,117 $ 2,055 $ -- $ -- $ --
Canada. . . . . . . 3,342 4,149 3,865 -- -- --
Rest of the world . 22 55 99 1,655 2,049 4,029
--------- --------- --------- --------- --------- --------
Lease Revenues $ 4,706 $ 5,321 $ 6,019 $ 1,655 $ 2,049 $ 4,029
========= ========= ========= ========= ========= ========
The following table sets forth income (loss) information by region for the years
ended December 31 (in thousands of dollars):
Owned Equipment Investments in USPEs
------------------------------ ----------------------------
Region 2002 2001 2000 2002 2001 2000
============================== ============================
United States. . . $ 652 $ (564) $ 491 $ -- $ -- $ --
South America. . . -- -- -- -- -- 1,308
Canada . . . . . . 2,453 2,984 2,447 -- -- --
Rest of the world. 10 20 (1) (672) (186) 298
--------- ---------- ------- --------- --------- -------
Regional
Income (loss) . 3,115 2,440 2,937 (672) (186) 1,606
Administrative
and other . . . (782) (865) (739) -- -- --
--------- ---------- ------- --------- --------- -------
Net income (loss). $ 2,333 $ 1,575 $ 2,198 $ (672) $ (186) $ 1,606
========= ========== ======= ========= ========= =======
The net book value of these assets at December 31, are as follows (in thousands
of dollars):
Owned Equipment Investments in USPEs
------------------------------- -----------------------------
Region 2002 2001 2000 2002 2001 2000
=============================== =============================
United States . . $ 44 $ 66 $ 302 $ -- $ -- $ --
Canada. . . . . . 164 249 1,203 -- -- --
Rest of the world 34 73 127 579 630 1,028
--------- --------- --------- --------- --------- --------
Net book value. . $ 242 $ 388 $ 1,632 $ 579 $ 630 $ 1,028
========= ========= ========= ========= ========= ========
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
7. Concentrations of Credit Risk
--------------------------------
For the year ended December 31, 2002, the Partnership's customer that accounted
for 10% or more of the total revenues for the owned and jointly owned equipment
was Newton (11% in 2002). No single lessee accounted for more than 10% of
revenues for the years ended 2001 or 2000.
As of December 31, 2002 and 2001, the General Partner believes the Partnership
had no other significant concentrations of credit risk that could have a
material adverse effect on the Partnership.
8. Income Taxes
-------------
The Partnership is not subject to income taxes, as any income or loss is
included in the tax returns of the individual partners. Accordingly, no
provision for income taxes has been made in the financial statements of the
Partnership.
As of December 31, 2002, the federal income tax basis was higher that the
financial statement carrying amount of assets and liabilities by $17.0 million,
primarily due to differences in depreciation methods and the tax treatment of
underwriting commissions and syndication costs.
9. Contingencies
-------------
The Partnership, together with affiliates, initiated litigation in 2000 and 2001
in various official forums in India against a defaulting Indian airline lessee
to repossess Partnership property and to recover damages for failure to pay rent
and failure to maintain such property in accordance with the relevant lease
contract. The Partnership has repossessed all of its property previously leased
to such airline, and the airline has ceased operations. In response to the
Partnership's collection efforts, the airline filed counter-claims against the
Partnership in excess of the Partnership's claims against the airline. The
General Partner believes that the airline's counterclaims are completely without
merit, and the General Partner will vigorously defend against such
counterclaims.
During 2001, the General Partner decided to minimize its collection efforts from
the Indian lessee in order to save the Partnership from incurring additional
expenses associated with trying to collect from a lessee that has no apparent
ability to pay.
The Partnership is involved as plaintiff or defendant in various other legal
actions incidental to its business. Management does not believe that any of
these actions will be material to the financial condition or results of
operations of the Partnership.
10. Liquidation and Special Distributions
----------------------------------------
On January 1, 1998, the General Partner began the liquidation phase of the
Partnership and commenced an orderly liquidation of the Partnership assets.
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 certain 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. 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.
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
10. Liquidation and Special Distributions (continued)
-----------------------------------------------------
A special distribution of $1.5 million ($0.25 per weighted-average depositary
unit) was paid in 2000. No special distributions were paid in 2002 or 2001.
The Partnership is not permitted to reinvest proceeds from sales or liquidations
of equipment. These proceeds, in excess of operational cash requirements, are
periodically paid out to limited partners in the form of special distributions.
The sales and liquidations occur because of 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.
11. Quarterly Results of Operations (unaudited)
-----------------------------------------------
The following is a summary of the quarterly results of operations for the year
ended December 31, 2002 (in thousands of dollars, except per share amounts):
March June September December
31, 30, 30, 31, Total
----------------------------------------------
Operating results:
Total revenues. . . . . . . . . . . $1,399 $1,196 $ 1,132 $ 1,284 $5,011
Net income. . . . . . . . . . . . . 641 489 122 409 1,661
Per weighted-average depositary unit:
Limited partners'
net income. . . . . . . . . . . . . $ 0.11 $ 0.08 $ 0.02 $ 0.08 $ 0.29
In the first quarter of 2002, the Partnership disposed of railcars and marine
containers and recorded a gain on disposition of $0.1 million.
The following is a summary of the quarterly results of operations for the year
ended December 31, 2001 (in thousands of dollars, except per share amounts):
March June September December
31, 30, 30, 31, Total
---------------------------------------------
Operating results:
Total revenues. . . . . . . . . . . $1,519 $1,353 $ 1,337 $ 1,336 $5,545
Net income. . . . . . . . . . . . . 195 503 52 639 1,389
Per weighted-average depositary unit:
Limited partners'
net income. . . . . . . . . . . . . $ 0.03 $ 0.09 $ 0.01 $ 0.11 $ 0.24
In the second quarter of 2001, the Partnership sold railcars for a gain of $0.1
million. In addition, in the second quarter of 2001 equity income from an USPE
marine vessel increased $0.2 million due to the vessel being in dry dock in the
first quarter of 2001, and going back on hire in the first month of the second
quarter.
In the fourth quarter of 2001, income from an USPE increased $0.6 million over
the previous quarter due to higher utilization.
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
12. Subsequent Event
-----------------
In the first quarter of 2003, the General Partner sold the marine vessel owned
by an entity in which the Partnership has an interest. The marine vessel was
sold for net proceeds of approximately $2.3 million, of which the Partnership's
share is approximately $1.1 million. The equity in income of the USPE that will
be recognized by the Partnership related to this transaction in the first
quarter of 2003 is approximately $0.9 million.
- ------
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund:
We have audited the financial statements of PLM Equipment Growth Fund (the
"Partnership") as of December 31, 2002 and 2001, and for each of the two years
in the period ended December 31, 2002, and have issued our report thereon dated
March 7, 2003, which report includes an explanatory paragraph emphasizing that
the Partnership has entered its liquidation phase; such report is included
elsewhere in this Form 10-K. Our audits also included the financial statement
schedules of PLM Equipment Growth Fund, listed in Item 15(B). These financial
statement schedules are the responsibility of the Partnership's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such 2002 and 2001 financial statement schedules, when considered in relation to
the basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
/s/ Deloitte & Touche, LLP
Certified Public Accountants
Tampa, Florida
March 7, 2003
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund:
Under date of March 12, 2001, we reported on the related statements of income,
changes in partners' capital, and cash flows for the year ended December 31,
2000 of PLM Equipment Growth Fund as contained in the 2002 annual report to the
partners. These financial statements and our report thereon are included in the
annual report on Form 10-K for the year ended December 31, 2002. In connection
with our audit of the aforementioned financial statements, we also audited the
related financial statement schedule for the year ended December 31, 2000. This
financial statement schedule is the responsibility of the Partnership's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audit.
In our opinion, such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein for the year ended December
31, 2000.
/s/ KPMG LLP
SAN FRANCISCO, CALIFORNIA
March 12, 2001
SCHEDULE II
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
(in thousands of dollars)
Balance at Additions Balance at
Beginning of Charged to End of
Year Expense Deductions Year
------------------------------------------------
Year Ended December 31, 2002
Allowance for Doubtful Accounts $ 124 $ (52) $ -- $ 72
Year Ended December 31, 2001
Allowance for Doubtful Accounts $ 103 $ 23 $ (2) $ 124
Year Ended December 31, 2000
Allowance for Doubtful Accounts $ 36 $ 98 $ (31) $ 103
PLM EQUIPMENT GROWTH FUND
INDEX OF EXHIBITS
Exhibit Page
- ------- ----
4.. . . Limited Partnership Agreement of Registrant *
4.1 Amendment to Limited Partnership Agreement of Registrant *
10.1 Management Agreement between Partnership and PLM Investment *
Management, Inc.
Financial Statement required under Regulation S-X Rule 3-09
99.1. Clement Partnership 47-57
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* Incorporated by reference. See page 20 of this report.