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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 1-10813
_______________________
PLM EQUIPMENT GROWTH FUND III,
LIQUIDATING TRUST (INITIAL)
(Exact name of registrant as specified in its charter)
CALIFORNIA 68-0146197
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 voting stock: N/A
Indicate the number of beneficial interests outstanding of each of the issuer's
classes of beneficial interests, as of the latest practicable date:
Class Outstanding at March 28, 2003
----- ---------------------------------
Beneficial interests: 9,871,210
An index of exhibits filed with this Form 10-K is located at page 11.
Total number of pages in this report: 63.
PART I
ITEM 1. BUSINESS
--------
(A) Background
On December 31, 2002 (inception), PLM Equipment Growth Fund III Liquidating
Trust (the Trust) was established. On that date all of the assets and
liabilities of PLM Equipment Growth Fund III, a California limited partnership
(the Partnership) were transferred to the Trust. PLM Financial Services, Inc.
(FSI) is the Trustee of the Trust. FSI is a wholly owned subsidiary of PLM
International, Inc. (PLM International). FSI has a 5% interest in the earnings
and distributions of the Trust.
The Partnership was formed on October 15, 1987 and engaged primarily in the
business of owning, leasing, or otherwise investing in predominately used
transportation and related equipment. FSI was the General Partner of the
Partnership.
The Trust's primary objectives are:
(1) to selectively sell equipment when the Trustee 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 effect on the Trust. As the Trust is in the
liquidation phase, proceeds from these sales, together with excess net operating
cash flows from operations, will be paid as distributions to the beneficial
interest holders; and
(2) to preserve and protect the value of the portfolio through quality
management.
As of December 31, 2002, there were 9,871,210 beneficial interests outstanding.
On December 31, 2002, the Trustee began the dissolution and liquidation of the
assets in the Trust in an orderly fashion.
Table 1, below, lists the equipment and the net realizable amounts of the
equipment in the Trust's portfolio, as of December 31, 2002 (in thousands of
dollars):
TABLE 1
-------
Realizable
Units Type Amounts
- -----------------------------------------------------------
Equipment held for operating leases:
433. . Pressurized tank railcars $ 3,988
700. . Non-pressurized tank railcars 3,816
176. . Intermodal trailers 388
119. . Marine containers 14
Total owned equipment held for operating leases $ 8,206
Railcars are leased under operating leases with terms of six months to six
years. Lease payments for intermodal trailers are based on a per-diem lease in
the free running interchange with the railroads. The Trust's marine containers
are leased to operators of utilization-type leasing pools that include equipment
owned by unaffiliated parties. In such instances, lease payments received by
the Trust consist of a specified percentage of payments generated by leasing the
pooled equipment to sublessees, after deducting certain direct operating
expenses of the pooled equipment.
(B) Management of Trust Equipment
- ----------------------------------------
The Trust has entered into an equipment management agreement with PLM Investment
Management, Inc. (IMI), a wholly owned subsidiary of FSI, for the management of
the Trust's equipment. The Trust's management agreement with IMI is to
co-terminate with the dissolution of the Trust, unless the beneficial interest
holders vote to terminate the agreement prior to that date or at the discretion
of the Trustee. IMI has agreed to perform all services necessary to manage the
equipment on behalf of the Trust and to perform or contract for the performance
of all obligations of the lessors under the Trust's leases. In consideration
for its services and pursuant to the Trust 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 by the Trust 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 Trust's purchase price of the equipment. The
short to mid-term nature of operating leases generally commands a higher rental
rate than longer-term, full payout leases and offers lessees relative
flexibility in their equipment commitment. In addition, the rental obligation
under an operating lease need not be capitalized on the lessee's balance sheet.
The Trust encounters considerable competition from lessors that utilize full
payout leases on new equipment, i.e. leases that have terms equal to the
expected economic life of the equipment. While some
lessees prefer the flexibility offered by a shorter-term operating lease, other
lessees prefer the rate advantages possible with a full payout lease.
Competitors may write full payout leases at considerably lower rates and for
longer terms than the Trust offers, or larger competitors with a lower cost of
capital may offer operating leases at lower rates, which may put the Trust at a
competitive disadvantage.
(2) Manufacturers and Equipment Lessors
- ----------------------------------------------
The Trust competes with equipment manufacturers who offer operating leases and
full payout leases. Manufacturers may provide ancillary services that the Trust
cannot offer, such as specialized maintenance service (including possible
substitution of equipment), training, warranty services, and trade-in
privileges.
The Trust 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 Trust operates in three operating segments: railcar leasing, trailer
leasing, and marine container leasing. Each equipment-leasing segment engages
in short-term to mid-term operating leases to a variety of customers. The
Trust's equipment is used to transport materials and commodities, rather than
people.
The following section describes the international and national markets in which
the Trust's capital equipment operates:
(1) Railcars
- ----------------
(a) 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 United States (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 Trust's nonpressurized tank railcars has been increasing
reflecting this market condition and presently stands at about 83%.
(b) 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 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 in the Trust is presently in the 88%
range. The desirability of the railcars in the Trust is affected by the
advancing age of this fleet.
(2) Intermodal Trailers
- ----------------------------
Intermodal trailers are used to transport a variety of dry goods by rail on
flatcars, usually for distances of over 400 miles. Over the past seven years,
intermodal trailers have continued to be rapidly displaced by domestic
containers as the preferred method of transport for such goods. This
displacement occurs because railroads offer approximately 20% lower wholesale
freight rates on domestic containers compared to intermodal trailers. During
2002, demand for intermodal trailers was more depressed than historic norms.
Unusually low demand occurred over the first half of the year due to a rapidly
slowing economy and low rail freight rates for 53-foot domestic containers. Due
to the decline in demand, shipments for the year within the intermodal pool
trailer market declined approximately 10% compared to the prior year. Average
utilization of the entire US intermodal trailer pool fleet declined from 77% in
1999 to 75% in 2000 to 63% in 2001 and further declined to a record low of 50%
in 2002.
The Trustee continued its aggressive marketing program in a bid to attract new
customers for the Trust's intermodal trailers during 2002. The largest trailer
customer, Consolidated Freightways, abruptly shut down their operations and
declared bankruptcy during 2002. This situation was largely offset by extensive
efforts with other carriers to increase market share. Even with these efforts,
average utilization of the Trust's intermodal trailers for the year 2002 dropped
12% from 2001 to approximately 61%, still 11% above the national average.
The trend towards using domestic containers instead of intermodal trailers is
expected to accelerate in the future. Due to the anticipated continued weakness
of the overall economy, intermodal trailer shipments are forecast to decline by
10% to 15% in 2003, compared to 2002. As such, the nationwide supply of
intermodal trailers is expected to have approximately 27,000 units in surplus
for 2003. The maintenance costs have increased approximately 12% from 2001 due
to improper repair methods performed by the railroads' vendors and billed to
owners.
(3) 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 Trust'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 Trust 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.
- ------
(E) Government Regulations
- -------------------------------
The use, maintenance, and ownership of equipment are regulated by federal,
state, local, or foreign government authorities. Such regulations may impose
restrictions and financial burdens on the Trust'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 Trust'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 Trust'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 Trust. Such regulations
include but are not limited to:
(1) The Montreal Protocol on Substances that Deplete the Ozone Layer and the
U.S. Clean Air Act Amendments of 1990, which call for the control and eventual
replacement of substances that have been found to cause or contribute
significantly to harmful effects to the stratospheric ozone layer and which are
used extensively as refrigerants in refrigerated marine cargo containers.
(2) The U.S. Department of Transportation's Hazardous Materials Regulations
regulates the classification and packaging requirements of hazardous materials
that apply particularly to Trust'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 Trust currently owns
432 jacketed tank railcars and 74 non-jacketed tank railcars that will need
re-qualification. As of December 31, 2002, 17 jacketed tank railcars and 14
non-jacketed tank railcars of the fleet will need to be re-qualified during 2003
or 2004.
As of December 31, 2002, the Trust 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 Trust neither owns nor leases any properties other than the equipment it has
purchased. As of December 31, 2002, the Trust owned a portfolio of
transportation and related equipment as described in Item 1, Table 1.
The Trust maintains its principal office at 235 3rd Street South, Suite 200, St.
Petersburg, FL 33701.
ITEM 3. LEGAL PROCEEDINGS
------------------
During 2000 and 2001, the Partnership, together with affiliates, initiated
litigation in various official forums in the United States and India against two
defaulting Indian airline lessees to repossess its property and to recover
damages for failure to pay rent and failure to maintain such property in
accordance with relevant lease contracts. In response to the Partnership's
collection efforts, the airline lessees filed counter-claims against the
Partnership, one of which was in excess of the Partnership's claims against the
airline.
FSI believes that the airline's counterclaims are completely without merit and
will vigorously defend against such counterclaims.
During 2001, an arbitration hearing was held between one India lessee and the
Partnership and the arbitration panel issued an award to the Partnership. The
Partnership initiated proceedings in India to collect on the arbitration award
and has recently been approached again by the lessee to discuss a negotiated
settlement of the Partnership's collection action. The arbitration award was
not accrued for in the December 31, 2002 financial statements because the
likelihood of collection of the award is remote. FSI will continue to try to
collect the full amount of the settlement.
During 2001, the FSI decided to minimize its collection efforts from the other
India lessee in order to save the Partnership from incurring additional expenses
associated with trying to collect from a lessee that has no apparent ability to
pay.
All matters of litigation of which the Partnership was involved have been
assumed by the Trust.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------
No matters were submitted to a vote of the Trust's beneficial interest holders
from December 31, 2002 (inception) through December 31, 2002.
PART II
ITEM 5. MARKET FOR THE TRUST'S EQUITY AND RELATED DEPOSITARY UNIT MATTERS
-------------------------------------------------------------------
Pursuant to the terms of the Trust agreement, the Trustee is entitled to a 5%
interest in the profits, losses and distributions of the Trust. The Trustee is
the sole holder of such interest. Special allocations of income are made to the
Trustee equal to the deficit balance, if any, in the capital account of the
Trustee. The Trustee's annual allocation of net income will generally be equal
to the Trustee's cash distributions paid during the current year. The remaining
interests in the profits, losses and distributions of the Trust are owned, as of
December 31, 2002, by the 7,995 beneficial interest holders in the Trust
There is no market for the sale of the beneficial interests of the Trust. The
Trustee will not allow for transfer of such ownership except by will, interstate
succession or operation of law.
ITEM 6. SELECTED FINANCIAL DATA
-------------------------
The Trust was formed on December 31, 2002 and as such has no historical data or
results of operations other than the following (in thousands of dollars):
TABLE 2
-------
As of December 31, 2002:
Total assets. . . . . . . $10,223
Total liabilities . . . . 7,539
-------
Net assets in liquidation $ 2,684
=======
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-------------------------------------------------------------------
RESULTS OF OPERATIONS
-------------------
(A) Introduction
Management's discussion and analysis of financial condition and results of
operations relates to the financial statements of PLM Equipment Growth Fund III,
Liquidating Trust (the Trust). The following discussion and analysis of
operations focuses on the performance of the Trust's equipment in the various
segments in which it operates and its effect on the Trust'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 Trust'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 Trust'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 Trust.
(2) Equipment Liquidations
Liquidation of Trust equipment represents a reduction in the size of the
equipment portfolio and may result in a reduction of contribution to the Trust.
(3) Equipment Valuation
In accordance with the liquidation basis of accounting, the carrying values of
the assets are presented at net realizable amounts.
(C) Financial Condition -- Capital Resources and Liquidity
The Trust's assets and liabilities were transferred to it from PLM Equipment
Growth Fund III. As of December 31, 2002, the Trust had no outstanding
indebtedness. The Trust relies on operating cash flow and asset disposition
proceeds to meet its operating obligations and make distributions to the
beneficial interest holders.
The Trustee 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 beneficial interest holders are prohibited from making
capital contributions to the Trust.
The Trust is in its active liquidation phase. As a result, the size of the
Trust'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 distributions to the beneficial
interest holders.
In accordance with the liquidation basis of accounting, the carrying values of
the assets are presented at net realizable amounts and all liabilities are
presented at estimated settlement amounts, including estimated costs associated
with completing the liquidation. Preparation of the financial statements on a
liquidation basis requires significant assumptions by the Trustee, including the
estimate of liquidation costs and the resolution of any contingent liabilities.
There may be differences between the assumptions and the actual results because
events and circumstances frequently do not occur as expected.
(D) Results of Operations
The Trust was formed on December 31, 2002; therefore, there are no results of
operations.
(E) 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 Trust'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 Trust's actual results could differ materially from
those discussed here.
(F) Outlook for the Future
Since the Trust is in its active liquidation phase, the Trustee will be seeking
to sell or re-lease assets as the existing leases expire until all the assets
are sold. Sale decisions will cause the operating performance of the Trust to
decline over the remainder of its life. Throughout the remaining life of the
Trust, the Trust may make distributions to the beneficial interest holders as
asset sales are completed.
Liquidation of the Trust's equipment will cause a reduction in the size of the
equipment portfolio and may result in a reduction of contribution to the Trust.
Other factors that may affect the Trust's contribution in the year 2003 include:
1. The Trust'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 lessees' preferences for newer equipment.
Demand for the Trust's marine containers will continue to be weak due to their
age. These containers will be sold on an "as is, where is" basis as leases
expire.
2. Railcar freight loadings in the United States and Canada decreased 1% and
3%, respectively, through most of 2002. There has been, however, a recent
increase for some of the commodities that drive demand for those types of
railcars owned by the Trust. It will be some time, however, before this
translates into new leasing demand by shippers since most shippers have idle
railcars in their fleets. The Trustee has entered into an agreement to sell all
of the Trust's remaining railcars which is expected to close in the first half
of 2003 for an amount that approximates the carrying amount on the Trust's
statement of net assets in liquidation (see Note 9 to the financial statements);
and
3. As the Trust's trailers are smaller than many shippers prefer, the
Trustee expects declines in utilization over the next few years. The Trustee
expects to sell all of the trailers during 2003.
The assets of the Trust are reported at their net realizable values that include
future lease payments as well as residual sales proceeds less any costs to sell.
The Trust does not have signed commitments or binding contracts to sell certain
of its transportation equipment at the reported net realizable value. The
estimate of the fair value for the Trust's transportation equipment is based on
the opinion of the Trust's equipment managers using data, reasoning and analysis
of prevailing market conditions of similar equipment, data from recent
purchases, independent third party valuations and discounted cash flows. At
December 31, 2003, the estimated gain on the Trust's transportation equipment if
sold at the reported net realizable value would be $6.3 million. Such
estimated gain has been deferred at December 31, 2002.
The ability of the Trust 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 Trustee continually monitors both the
equipment markets and the performance of the Trust's equipment in these markets
to determine the most advantageous time to dispose its equipment.
Several other factors may affect the Trust's operating performance in 2003 and
beyond, including changes in the markets for the Trust's equipment and changes
in the regulatory environment in which that equipment operates.
The other factors that may affect the Trust's contribution in 2003 and beyond
include:
(1) Repricing Risk
Until sold, certain of the Trust's marine containers, railcars and trailers will
be remarketed in 2003 as existing leases expire, exposing the Trust to repricing
risk/opportunity.
(2) Impact of Government Regulations on Future Operations
The Trustee operates the Trust'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 Trust'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 Trust of meeting regulatory compliance for the same equipment operated
between countries. Ongoing changes in the regulatory environment, both in the
United States and internationally, cannot be predicted with any accuracy and
preclude the Trustee from determining the impact of such changes on Trust
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 Trust's tank railcars. The Federal Railroad
Administration has mandated that effective July 1, 2000 all tank railcars must
be re-qualified every ten years from the last test date stenciled on each
railcar to insure tank shell integrity. Tank shell thickness, weld seams, and
weld attachments must be inspected and repaired if necessary to re-qualify the
tank railcar for service. The average cost of this inspection is $3,600 for
jacketed tank railcars and $1,800 for non-jacketed tank railcars, not including
any necessary repairs. This inspection is to be performed at the next scheduled
tank test and every ten years thereafter. The Trust currently owns 432 jacketed
tank railcars and 74 non-jacketed tank railcars that will need re-qualification.
As of December 31, 2002, 17 jacketed tank railcars and 14 non-jacketed tank
railcars of the fleet will need to be re-qualified during 2003 or 2004.
(3) Distributions
During the active liquidation phase, the Trust 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 beneficial unitholders.
(4) Liquidation
Liquidation of the Trust's equipment represents a reduction in the size of the
equipment portfolio and may result in a reduction of contribution to the Trust.
Since the Trust is in its active liquidation phase, the size of the Trust'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 distributions to beneficial unitholders.
The Trust is scheduled to be dissolved by December 31, 2004, although this date
may be extended.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------------
The Trust's primary market risk exposure is currency devaluation risk. Most of
the leases require payment in United States (US) currency. If these lessees'
currency devalues against the US dollar, the lessees could potentially encounter
difficulty in making the US dollar denominated lease payments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -------- -----------------------------------------------
The financial statements for the Trust 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
None.
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 and
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 Trust has no directors, officers, or employees. The Trust 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 Trustee is generally entitled to a 5% interest in the profits and losses
(subject to certain allocations of income) and distributions of the Trust. As
of December 31, 2002, no beneficiary interest holder was known by the Trustee to
beneficially own more than 5% of the beneficial interest of the Trust.
(B) Security Ownership of Management
Neither the Trustee and its affiliates nor any executive officer or director of
the Trustee and its affiliates own any beneficial interest of the Trust as of
December 31, 2002.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------
Transactions with Management and Others:
None.
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 Trustee's principal Executive Officer and Chief Financial Officer have
concluded that the Trust's disclosure controls and procedures are effective to
ensure that information required to be disclosed in the reports that the Trust
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 Trust'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 STATEMENT SCHEDULES, AND REPORTS ON FORM 8K
------------------------------------------------------------------
(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
a. None.
(B) Reports on Form 8-K
Form 8-K dated December 16, 2002, announcing, effective December 31, 2002,
that the assets and liabilities of PLM Equipment Growth Fund III were
transferred to PLM Equipment Growth Fund III, Liquidating Trust.
(C) Financial Statement Schedule
None.
(D) Exhibits
4. Plan of Dissolution and Liquidation dated December 31, 2002 between PLM
Equipment Growth Fund III and PLM Financial Services, Inc.
4.1 Liquidating Trust Agreement dated December 31, 2002 by and between PLM
Equipment Growth Fund III as grantor and PLM Financial Services, Inc. as the
Trustee for PLM Equipment Growth Fund III, Liquidating Trust.
4.2 Bill of Sale Assignment and Assumption Agreement entered into as of
December 31, 2002 by and among PLM Equipment Growth Fund III and PLM Financial
Services, Inc. as the Trustee for PLM Equipment Growth Fund III, Liquidating
Trust.
10.1 Management Agreement between the Trust and PLM Investment Management,
Inc. Incorporated by reference to the Partnership's Registration Statement on
Form S-1 (Reg. No. 33-18104), which became effective with the Securities and
Exchange Commission on March 25, 1988.
CONTROL CERTIFICATION
I, James A. Coyne, certify that:
1. I have reviewed this annual report on Form 10-K of PLM Equipment Growth
Fund III, Liquidating Trust.
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 statement of net assets in liquidation at December 31, 2002;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others,
particularly during the period in which this 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 28, 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 III, Liquidating Trust.
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 statement of net assets in liquidation at December 31, 2002;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others,
particularly during the period in which this 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 28, 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 Trust has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
The Trust has no directors or officers. The Trustee has signed on behalf of the
Trust by duly authorized officers.
Date: March 28, 2003 PLM EQUIPMENT GROWTH FUND III, LIQUIDATING TRUST
By: PLM Financial Services, Inc.
Trustee
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 Trustee
of PLM Equipment Growth Fund III, Liquidating Trust (the Trust), that the Annual
Report of the Trust 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 Trust at the end of such
period and the results of operations of the Trust 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 Trust's Trustee on the
dates indicated.
Name Capacity Date
- ---- -------- ----
/s/ Gary D. Engle
- --------------------
Gary D. Engle Director, FSI March 28, 2003
/s/ James A. Coyne
- ---------------------
James A. Coyne Director, FSI March 28, 2003
/s/ Richard K Brock
- ----------------------
Richard K Brock Director, FSI March 28, 2003
PLM EQUIPMENT GROWTH FUND III, LIQUIDATING TRUST
(A TRUST)
INDEX TO FINANCIAL STATEMENTS
(Item 15(a))
Page
----
Independent auditors' report 16
Statement of net assets in liquidation at December 31, 2002 17
Statement of changes in net assets in liquidation
for the period from inception (December 31, 2002) through
December 31, 2002 18
Notes to financial statements 19-22
INDEPENDENT AUDITORS' REPORT
The Beneficiaries
PLM Equipment Growth Fund III, Liquidating Trust:
We have audited the accompanying statement of net assets in liquidation of PLM
Equipment Growth Fund III, Liquidating Trust (the "Trust") as of December 31,
2002 and the related statement of changes in net assets in liquidation for the
period from December 31, 2002 (inception) to December 31, 2002. These financial
statements are the responsibility of the Trust'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
statement. 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, the Trust was established to
liquidate the assets and pay all liabilities of the Trust. The Trust is
scheduled to be dissolved by December 31, 2004, although this date may be
extended. The Trust accounts for its net assets under the liquidation basis of
accounting.
In our opinion, such financial statements present fairly, in all material
respects, the net assets in liquidation of the Trust as of December 31, 2002,
and the changes in its net assets in liquidation for the period from December
31, 2002 (inception) to December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America applied on the
basis described in the preceding paragraph.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Tampa, Florida
March 7, 2003
PLM EQUIPMENT GROWTH FUND III, LIQUIDATING TRUST
(A TRUST)
STATEMENT OF NET ASSETS IN LIQUIDATION
DECEMBER 31, 2002
(in thousands of dollars)
ASSETS
Transportation equipment. . . . . . . . . . . . . . . $ 8,206
Cash and cash equivalents . . . . . . . . . . . . . . 1,611
Accounts receivable . . . . . . . . . . . . . . . . . 406
-------
Total assets. . . . . . . . . . . . . . . . . . $10,223
=======
LIABILITIES AND NET ASSETS IN LIQUIDATION
Liabilities
Accounts payable and accrued expenses . . . . . . . . $ 1,060
Deferred gain on the sale of transportation equipment 6,330
Due to affiliates . . . . . . . . . . . . . . . . . . 49
-------
Total liabilities . . . . . . . . . . . . . . . . . 7,439
-------
Net assets in liquidation . . . . . . . . . . . . . . $ 2,784
=======
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND III, LIQUIDATING TRUST
(A TRUST)
STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION (LIQUIDATION BASIS)
FOR THE PERIOD FROM INCEPTION (DECEMBER 31, 2002) THROUGH DECEMBER 31, 2002
(in thousands of dollars)
Limited
Partners Trustee Total
----------------------------
Net assets at December 31, 2002 . . . . . . . . . $ -- $ -- $ --
Transfer of net assets in liquidation . . . . . . 2,784 -- 2,784
--------- -------- ------
Net assets in liquidation as of December 31, 2002 $ 2,784 $ -- $2,784
========= ======== ======
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND III, LIQUIDATING TRUST
(A TRUST)
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
-----------------------
Organization
- ------------
On December 31, 2002 (inception), PLM Equipment Growth Fund III, Liquidating
Trust (the Trust) was established. On that date all of the assets and
liabilities of PLM Equipment Growth Fund III were transferred to the Trust. PLM
Financial Services, Inc. (FSI) is the Trustee of the Trust. FSI has a 5%
interest in the earnings and distributions of the Trust.
The Trust's primary purpose is to liquidate the assets and pay all liabilities
of the Trust. The Trust has a scheduled termination date of December 31, 2004,
although that date may be extended.
The Trust is currently marketing all of the Trust's equipment for sale.
Estimates
- ---------
The accompanying financial statements have been prepared on the liquidation
basis of accounting. The carrying values of the assets are presented at net
realizable amounts and all liabilities are presented at estimated settlement
amounts, including estimated costs associated with completing the liquidation,
in accordance with accounting principles generally accepted in the Unites States
of America. This requires the Trustee 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. Actual results
could differ from those estimates.
Liquidation Accounting
- -----------------------
The assets of the Trust are reported at their net realizable values that include
future lease payments as well as residual sales proceeds less any costs to sell.
The Trust does not have signed commitments or binding contracts to sell certain
of its transportation equipment at the reported net realizable value. The
estimate of the fair value for the Trust's transportation equipment is based on
the opinion of the Trust's equipment managers using data, reasoning and analysis
of prevailing market conditions of similar equipment, data from recent
purchases, independent third party valuations and discounted cash flows. At
December 31, 2003, the estimated gain on the Trust's transportation equipment if
sold at the reported net realizable value would be $6.3 million. Such estimated
gain has been deferred at December 31, 2002.
The amounts reported for liabilities include all estimated expenses to conclude
the operations of the Trust.
The net adjustment required to convert from the going concern (historical cost)
basis of accounting to the liquidation basis of accounting was an increase in
net assets of $5.5 million. This amount is reflected in the transfer of net
assets in liquidation in the Statement of Changes in Net Assets in Liquidation.
Significant changes in the carrying value of assets and liabilities are
summarized as follows (in thousands of dollars):
Adjustment of assets from historical costs $6,066
Adjustment to accrued expenses . . . . . . 612
------
Total adjustment to liquidation basis. . . $5,454
======
------
PLM EQUIPMENT GROWTH FUND III, LIQUIDATING TRUST
(A TRUST)
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation (continued)
-----------------------
Operations
- ----------
PLM Equipment Growth Fund III, a California limited partnership (the
Partnership), was formed on October 15, 1987. The Partnership engaged primarily
in the business of owning, leasing, or otherwise investing in predominately used
transportation and related equipment. PLM Financial Services, Inc. (FSI) was
the General Partner of the Partnership. FSI is a wholly owned subsidiary of PLM
International, Inc. (PLM International).
In December 2002, FSI filed a Registration Statement on Form 15-12G with the
Securities and Exchange Commission with respect to a certificate of cancellation
of PLM Equipment Growth Fund III and the formation of PLM Equipment Growth Fund
III, Liquidating Trust (the Trust). The Trust became effective on December 31,
2002. FSI, as Trustee, owns a 5% interest in the Trust. The Trust was
organized to liquidate and dissolve all of the remaining assets and liabilities
of the Trust.
The equipment of the Trust 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 Trust 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 investment programs.
Transportation Equipment
- -------------------------
Equipment held for operating leases is stated at net realizable value less any
costs to sell.
Repairs and Maintenance
- -------------------------
Repair and maintenance costs for railcars and trailers are usually the
obligation of the Trust. Maintenance costs for the marine containers are the
obligation of the lessee. Estimated future repairs and maintenance costs have
reduced the net fair value of transportation equipment on the statement of net
assets in liquidation.
Net Income and Distributions Per Beneficial Unit
- ------------------------------------------------------
Cash distributions are allocated 95% to the beneficial holders and 5% to the
Trustee. Special allocations of income are made to (from) the Trustee equal to
the deficiency (equity) balance, if any, in the capital account of the Trustee.
Cash distributions are recorded when declared.
Cash and Cash Equivalents
- ----------------------------
The Trust considers highly liquid investments that are readily convertible into
known amounts of cash with original maturities of three months or less as cash
equivalents.
2. Transactions with General Partner and Affiliates
-----------------------------------------------------
Under the equipment management agreement, IMI receives a monthly management fee
equal to the greater of (a) the fees that would be charged by an independent
third party for similar services for similar equipment or (b) the sum of (i) 5%
of the gross lease revenues attributable to equipment that is subject to
operating leases, (ii) 2% of the gross lease revenues attributable to equipment
that is subject to full payout net leases, and (iii) 7% of the gross lease
revenues attributable to equipment for which IMI provides both management and
additional services relating to the continued and active operation of program
equipment, such as on-going marketing and re-leasing of equipment, hiring or
arranging for the hiring of crew or operating personnel for equipment, and
similar services.
PLM EQUIPMENT GROWTH FUND III, LIQUIDATING TRUST
(A TRUST)
NOTES TO FINANCIAL STATEMENTS
3. Transportation Equipment
-------------------------
The components of transportation equipment as of December 31, 2002 are as
follows (in thousands of dollars):
Railcars. . . . . $7,804
Trailers. . . . . 388
Marine containers 14
------
Net equipment . $8,206
======
Lease payments for railcars are based on fixed rates. Lease payments for
trailers are based on a per-diem lease in the free running interchange with the
railroads. The Trust's marine containers are leased to operators of
utilization-type leasing pools that include equipment owned by unaffiliated
parties. In such instances, lease payments received by the Trust consist of a
specified percentage of revenues generated by leasing the equipment to
sublessees, after deducting certain direct operating expenses of the pooled
equipment.
As of December 31, 2002, all transportation equipment in the Trust portfolio was
on lease except for 171 railcars, with an aggregate net fair value of $1.2
million.
Future minimum rents under noncancelable operating leases as of December 31,
2002 during each of the next five years are $4.2 million in 2003, $2.5 million
in 2004, $1.7 million in 2005, $0.7 million in 2006, $0.3 million in 2007 and
$0.6 million thereafter. While the leases for certain transportation equipment
extend beyond the Trust's expected dissolution date, the Trustee believes it
will be able to sell that transportation equipment subject to those leases.
The Trustee has entered into a non-binding agreement to sell all of the Trust's
railcars for an amount that approximates the carrying value in the accompanying
statement of net assets in liquidation (see Note 9).
4. Geographic Information
-----------------------
The Trust owns certain equipment that is leased and operated internationally. A
limited number of the Trust's transactions are denominated in a foreign
currency.
The Trust leases its railcars and trailers to lessees domiciled in two
geographic regions: the United States and Canada. Marine containers are leased
to multiple lessees in different regions that operate worldwide.
The net realizable value of these assets as of December 31, 2002 is as follows
(in thousands of dollars):
Region Owned Equipment
- ------------------------------------------
Canada . . . . . . . . . $ 4,952
United States. . . . . . 3,240
Rest of the world. . . . 14
----------------
Net realizable value $ 8,206
================
5. Concentrations of Credit Risk
--------------------------------
As of December 31, 2002, the Trustee believes the Trust had no significant
concentrations of credit risk that could have a material adverse effect on the
Trust.
6. Income Taxes
-------------
The Trust is not subject to income taxes, as any income or loss is included in
the tax returns of the individual beneficial interest holders. Accordingly,
no provision for income taxes has been made in the
PLM EQUIPMENT GROWTH FUND III, LIQUIDATING TRUST
(A TRUST)
NOTES TO FINANCIAL STATEMENTS
6. Income Taxes (continued)
-------------
financial statements of the Trust.
As of December 31, 2002, the federal income tax basis was higher than the
financial statement carrying amount of assets and liabilities by $22.7 million,
primarily due to differences in the carrying value of the owned equipment and
certain accruals using the liquidation method of accounting, and the tax
treatment of underwriting commissions and syndication costs.
7. Contingencies
-------------
During 2000 and 2001, the Partnership, together with affiliates, initiated
litigation in various official forums in the United States and India against two
defaulting Indian airline lessees to repossess its property and to recover
damages for failure to pay rent and failure to maintain such property in
accordance with relevant lease contracts. In response to the Partnership's
collection efforts, the airline lessees filed counter-claims against the
Partnership, one of which was in excess of the Partnership's claims against the
airline.
FSI believes that the airline's counterclaims are completely without merit and
will vigorously defend against such counterclaims.
During 2001, an arbitration hearing was held between one India lessee and the
Partnership and the arbitration panel issued an award to the Partnership. The
Partnership initiated proceedings in India to collect on the arbitration award
and has recently been approached again by the lessee to discuss a negotiated
settlement of the Partnership's collection action. The arbitration award was
not accrued for in the December 31, 2002 financial statements because the
likelihood of collection of the award is remote. FSI will continue to try to
collect the full amount of the settlement.
During 2001, FSI decided to minimize its collection efforts from the other India
lessee in order to save the Partnership from incurring additional expenses
associated with trying to collect from a lessee that has no apparent ability to
pay.
All matters of litigation of which the Partnership was involved have been
assumed by the Trust.
The Trust is involved as plaintiff or defendant in various other legal actions
incidental to its business. The Trustee does not believe that any of these
actions will be material to the financial condition or results of operations of
the Trust.
8. Liquidation of Trust
----------------------
The Trustee is actively marketing the remaining equipment portfolio with the
intent of maximizing sale proceeds. As sales proceeds are received, the Trustee
intends to periodically declare distributions to distribute the sale proceeds to
the beneficial interest holders. During the liquidation phase of the Trust, the
equipment will continue to be leased under operating leases until sold. The
amounts reflected for assets and liabilities of the Trust have been adjusted to
reflect liquidation values. The transportation equipment portfolio is reported
at the net realizable value less any disposal costs. Any excess proceeds over
expected Trust obligations will be distributed to the beneficial interest
holders throughout the liquidation period. The Trust is scheduled to be
dissolved by December 31, 2004, although that date may be extended. Upon final
liquidation, the Trust will be dissolved.
9. Subsequent Event
-----------------
In March 2003, the Trustee entered into a non-binding agreement to sell all of
the Trust's railcars for $6.7 million plus 50% of all the residual proceeds
after the buyer has received a 12% return on its investment. The buyer has the
option to purchase the right to the Trust's residual sales proceeds for $1.5
million prior to December 31, 2003. Estimated transaction costs are
approximately $0.4 million. This transaction is expected to close in the first
half of 2003.
PLM EQUIPMENT GROWTH FUND III, LIQUIDATING TRUST
(A TRUST)
INDEX OF EXHIBITS
Exhibit Page
- ------- ----
4. Plan of Dissolution and Liquidation dated December 31, 2002 between
PLM Equipment Growth Fund III and PLM Financial Services, Inc. 25-27
4.1 Liquidating Trust Agreement dated December 31, 2002 by and between
PLM Equipment Growth Fund III as grantor and PLM Financial Services,
Inc. as the Trustee for PLM Equipment Growth Fund III, Liquidating
Trust 28-60
4.2 Bill of Sale Assignment and Assumption Agreement entered into as
of December 31, 2002 by and among PLM Equipment Growth Fund III and
PLM Financial Services, Inc. as the Trustee for PLM Equipment
Growth Fund III, Liquidating Trust. 61-63
10.1 Management Agreement between Trust and PLM Investment
Management, Inc. **
* Incorporated by reference. See page 11 of this report.