UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-10813
_______________________
PLM EQUIPMENT GROWTH FUND III
(Exact name of registrant as specified in its charter)
CALIFORNIA . . . . . . . . . . . 68-0146197
(State or other jurisdiction of. (I.R.S. Employer
incorporation or organization) . Identification No.)
450 CARILLON PARKWAY SUITE 200
ST. PETERSBURG, FL . . . . . . . 33716
(Address of principal. . . . . . (Zip code)
executive offices)
Registrant's telephone number, including area code: (727) 803-8200
_______________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ______
----
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
CONDENSED BALANCE SHEETS
(in thousands of dollars, except unit amounts)
(unaudited)
September 30, December 31,
2002 2001
=============== ==============
ASSETS
Equipment held for operating leases at cost. . . . . . . . . . $ 30,635 $ 37,731
Less accumulated depreciation. . . . . . . . . . . . . . . . . (28,248) (33,833)
--------------- --------------
Net equipment. . . . . . . . . . . . . . . . . . . . . . . . 2,387 3,898
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . 7,317 10,141
Accounts receivable, net of allowance for doubtful
accounts of $475 in 2002 and $518 in 2001. . . . . . . . . 367 420
Prepaid expenses and other assets. . . . . . . . . . . . . . . 60 23
--------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $ 10,131 $ 14,482
=============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses. . . . . . . . . . . . . $ 238 $ 416
Due to affiliates. . . . . . . . . . . . . . . . . . . . . . . 50 66
Lessee deposits and reserves for repairs . . . . . . . . . . . 2 29
--------------- --------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . 290 511
--------------- --------------
Partners' capital:
Limited partners (9,871,210 depositary units in 2002 and 2001) 9,841 13,971
General Partner. . . . . . . . . . . . . . . . . . . . . . . . -- --
--------------- --------------
Total partners' capital. . . . . . . . . . . . . . . . . . . 9,841 13,971
--------------- --------------
Total liabilities and partners' capital. . . . . . . . . . $ 10,131 $ 14,482
=============== ==============
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
CONDENSED STATEMENTS OF INCOME
(in thousands of dollars, except weighted-average unit amounts)
(unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2002 2001 2002 2001
==========================================
REVENUES
Lease revenue . . . . . . . . . . . . . . . . . . $ 1,351 $ 1,688 $ 4,397 $ 5,363
Interest and other income . . . . . . . . . . . . 40 78 107 248
Gain on disposition of equipment. . . . . . . . . 106 31 305 4,015
--------- --------- --------- ---------
Total revenues. . . . . . . . . . . . . . . . . 1,497 1,797 4,809 9,626
--------- --------- --------- ---------
EXPENSES
Depreciation. . . . . . . . . . . . . . . . . . . 366 428 1,121 1,464
Repairs and maintenance . . . . . . . . . . . . . 507 483 1,525 1,574
Equipment operating expenses. . . . . . . . . . . 9 9 28 26
Insurance expense . . . . . . . . . . . . . . . . 21 20 63 115
Management fees to affiliate. . . . . . . . . . . 97 119 307 354
General and administrative expenses to
affiliates . . . . . . . . . . . . . . . . . 55 60 163 310
Other general and administrative expenses . . . . 371 182 817 880
(Recovery of) provision for bad debts . . . . . . (57) (92) (33) 4
--------- --------- --------- ---------
Total expenses. . . . . . . . . . . . . . . . . 1,369 1,209 3,991 4,727
--------- --------- --------- ---------
Equity in net income (loss) of an unconsolidated
special-purpose entity. . . . . . . . . . . . -- -- 40 (10)
--------- --------- --------- ---------
Net income. . . . . . . . . . . . . . . . . . $ 128 $ 588 $ 858 $ 4,889
========= ========= ========= =========
PARTNERS' SHARE OF NET INCOME
Limited partners. . . . . . . . . . . . . . . . . $ 128 $ 588 $ 609 $ 4,858
General Partner . . . . . . . . . . . . . . . . . -- -- 249 31
--------- --------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . $ 128 $ 588 $ 858 $ 4,889
========= ========= ========= =========
Limited partners' net income per weighted-
average depositary unit . . . . . . . . . . . . $ 0.01 $ 0.06 $ 0.06 $ 0.49
========= ========= ========= =========
Cash distribution . . . . . . . . . . . . . . . . $ -- $ -- $ 4,988 $ 624
========= ========= ========= =========
Cash distribution per limited partners' weighted-
average depositary unit . . . . . . . . . . . $ -- $ -- $ 0.48 $ 0.06
========= ========= ========= =========
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
CONDENSED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD FROM DECEMBER 31, 2000 TO SEPTEMBER 30, 2002
(in thousands of dollars)
(unaudited)
Limited General
Partners Partner Total
========== ========= ========
Partners' capital as of December 31, 2000. $ 9,316 $ -- $ 9,316
Net income . . . . . . . . . . . . . . . . . 5,247 31 5,278
Cash distribution. . . . . . . . . . . . . . (592) (31) (623)
---------- --------- --------
Partners' capital as of December 31, 2001. 13,971 -- 13,971
Net income . . . . . . . . . . . . . . . . . 609 249 858
Cash distribution. . . . . . . . . . . . . . (4,739) (249) (4,988)
---------- --------- --------
Partners' capital as of September 30, 2002 $ 9,841 $ -- $ 9,841
========== ========= ========
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
For the Nine Months
Ended September 30,
2002 2001
====================
OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 858 $ 4,889
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,121 1,464
Gain on disposition of equipment. . . . . . . . . . . . . . . . . . . . (305) (4,015)
Equity in net (income) loss from unconsolidated special-purpose entity. (40) 10
Changes in operating assets and liabilities:
Accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . 48 125
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (23)
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . (37) 18
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . (178) (32)
Due to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . (16) (2)
Lessee deposits and reserves for repairs. . . . . . . . . . . . . . . (27) (187)
--------- ---------
Net cash provided by operating activities . . . . . . . . . . . . . 1,424 2,247
--------- ---------
INVESTING ACTIVITIES
Payments for capitalized improvements . . . . . . . . . . . . . . . . . . (21) (70)
Distributions from unconsolidated special-purpose entity. . . . . . . . . 40 66
Proceeds from disposition of equipment. . . . . . . . . . . . . . . . . . 721 5,626
--------- ---------
Net cash provided by investing activities . . . . . . . . . . . . . 740 5,622
--------- ---------
FINANCING ACTIVITIES
Cash distribution paid to limited partners. . . . . . . . . . . . . . . . (4,739) (593)
Cash distribution paid to General Partner . . . . . . . . . . . . . . . . (249) (31)
--------- ---------
Net cash used in financing activities . . . . . . . . . . . . . . . (4,988) (624)
--------- ---------
Net (decrease) increase in cash and cash equivalents. . . . . . . . . . . (2,824) 7,245
Cash and cash equivalents at beginning of period. . . . . . . . . . . . . 10,141 1,832
--------- ---------
Cash and cash equivalents at end of period. . . . . . . . . . . . . . . . $ 7,317 $ 9,077
========= =========
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Opinion of Management
-----------------------
In the opinion of the management of PLM Financial Services, Inc. (FSI or the
General Partner), the accompanying unaudited condensed financial statements
contain all adjustments necessary, consisting primarily of normal recurring
accruals, to present fairly the unaudited condensed financial position of PLM
Equipment Growth Fund III (the Partnership) as of September 30, 2002 and
December 31, 2001, the unaudited condensed statements of income for the three
and nine months ended September 30, 2002 and 2001, the unaudited condensed
statements of changes in partners' capital for the period from December 31, 2000
to September 30, 2002, and the unaudited condensed statements of cash flows for
the nine months ended September 30, 2002 and 2001. Certain information and note
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted from the accompanying condensed financial
statements. For further information, reference should be made to the financial
statements and notes thereto included in the Partnership's Annual Report on Form
10-K for the year ended December 31, 2001, on file at the Securities and
Exchange Commission.
2. Schedule of Partnership Phases
---------------------------------
The Partnership, in accordance with its limited partnership agreement, entered
its liquidation phase on January 1, 2000 and has commenced an orderly
liquidation of the Partnership's assets. The General Partner filed a
certificate of dissolution on behalf of the Partnership with the Secretary of
State for the State of California on December 31, 2000, and following completion
of the liquidation of the Partnership, will file a certificate of cancellation.
The General Partner may no longer reinvest cash flows and surplus funds in
equipment. All future cash flows and surplus funds, if any, are to be used for
distributions to partners, except to the extent used to maintain reasonable
reserves. During the liquidation phase, the Partnership's assets will continue
to be reported at the lower of carrying amount or fair value less cost to sell.
3. Cash Distributions
-------------------
Cash distributions are recorded when paid and may include amounts in excess of
net income that are considered to represent a return of capital. For the three
and nine months ended September 30, 2002, cash distributions totaled $0 and $5.0
million, respectively. Cash distributions to the limited partners of $4.1
million for the nine months ended September 30, 2002 were deemed to be a return
of capital. For the three and nine months ended September 30, 2001, cash
distributions were $-0- and $0.6 million, respectively. None of the cash
distributions in the nine months ended September 30, 2001 were considered a
return of capital.
4. Transactions with General Partner and Affiliates
-----------------------------------------------------
The balance due to affiliates as of September 30, 2002 and December 31, 2001 of
$0.1 million is a payable to FSI and its affiliate for management fees.
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
5. Equipment
---------
Owned equipment held for operating leases is stated at cost. The components of
owned equipment were as follows (in thousands of dollars):
September 30, December 31,
2002 2001
===============================
Railcars. . . . . . . . . . . $ 27,735 $ 32,305
Trailers. . . . . . . . . . . 2,473 3,036
Marine containers . . . . . . 427 2,390
--------------- --------------
30,635 37,731
Less accumulated depreciation (28,248) (33,833)
--------------- --------------
Net equipment . . . . . . $ 2,387 $ 3,898
=============== ==============
As of September 30, 2002, all equipment in the Partnership portfolio was on
lease except for six containers and 175 railcars. As of December 31, 2001, all
equipment in the Partnership portfolio was on lease except for 100 railcars.
The net book value of the equipment off lease was $0.3 million as of September
30, 2002 and December 31, 2001.
Capital improvements to the Partnership's equipment of $21,000 and $0.1 million
were made during the nine months ended September 30, 2002 and 2001,
respectively.
During the nine months ended September 30, 2002, the Partnership disposed of
marine containers, trailers, and railcars, with an aggregate net book value of
$0.4 million for aggregate proceeds of $0.7 million. During the nine months
ended September 30, 2001, the Partnership disposed of aircraft, marine
containers, trailers, and railcars, with an aggregate net book value of $1.6
million, for proceeds of $5.6 million.
(This space intentionally left blank)
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
6. Operating Segments
-------------------
The Partnership operates or operated primarily in four different segments:
aircraft leasing, railcar leasing, marine container leasing, and trailer
leasing. Each equipment-leasing segment engages in short-term and mid-term
operating leases to a variety of customers. The following tables present a
summary of the operating segments (in thousands of dollars):
Marine
For the three months ended Railcar Container Trailer
September 30, 2002 Leasing Leasing Leasing Other 1 Total
- -------------------------------------------------------------------------------------------
REVENUES
Lease revenue. . . . . . . . . . . . $ 1,270 $ 1 $ 80 $ -- $ 1,351
Interest income and other. . . . . . -- -- -- 40 40
Gain on disposition of equipment . . 67 39 -- -- 106
--------- ---------- --------- --------- --------
Total revenues. . . . . . . . . . 1,337 40 80 40 1,497
--------- ---------- --------- --------- --------
COSTS AND EXPENSES
Operations support . . . . . . . . . 445 -- 77 15 537
Depreciation . . . . . . . . . . . . 328 6 32 -- 366
Management fees to affiliates. . . . 93 1 3 -- 97
General and administrative expenses. 160 -- 19 247 426
Recovery of bad debts. . . . . . . . (57) -- -- -- (57)
--------- ---------- --------- --------- --------
Total costs and expenses . . . . 969 7 131 262 1,369
--------- ---------- --------- --------- --------
Net income (loss). . . . . . . . . . . $ 368 $ 33 $ (51) $ (222) $ 128
========= ========== ========= ========= ========
Total assets as of June 30, 2002 . . . $ 2,085 $ 21 $ 648 $ 7,377 $10,131
========= ========== ========= ========= ========
Marine
For the three months ended Aircraft Railcar Container Trailer
September 30, 2001 Leasing Leasing Leasing Leasing Other 2 Total
- ------------------------------------------------------------------------------------------------------------
REVENUES
Lease revenue. . . . . . . . . . . . . . $ -- $ 1,586 $ (3) $ 105 $ -- $1,688
Interest income and other. . . . . . . . -- -- -- -- 78 78
Gain (loss) on disposition of equipment. (5) 23 11 2 -- 31
---------- --------- ----------- --------- --------- -------
Total revenues. . . . . . . . . . . . (5) 1,609 8 107 78 1,797
---------- --------- ----------- --------- --------- -------
COSTS AND EXPENSES
Operations support . . . . . . . . . . . 77 362 -- 57 16 512
Depreciation and amortization. . . . . . -- 386 7 35 -- 428
Management fees to affiliates. . . . . . (2) 116 -- 5 -- 119
General and administrative expenses. . . -- 48 -- 26 168 242
Recovery of bad debts . . . . . . . . . -- (92) -- -- -- (92)
---------- --------- ----------- --------- --------- -------
Total costs and expenses . . . . . . 75 820 7 123 184 1,209
---------- --------- ----------- --------- --------- -------
Net income (loss). . . . . . . . . . . . . $ (80) $ 789 $ 1 $ (16) $ (106) $ 588
========== ========= =========== ========= ========= =======
_________________________
1 Includes certain assets not identifiable to a particular segment, such as
cash and prepaid expenses. Also includes interest income and costs not
identifiable to a particular segment such as certain operations support and
general and administrative expenses and costs related to sold aircraft and
marine vessels that were wholly owned.
2 Includes certain interest income and costs not identifiable to a
particular segment such as certain operations support and general and
administrative expenses.
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
6. Operating Segments (continued)
-------------------
Marine
For the nine months ended Railcar Container Trailer
September 30, 2002 Leasing Leasing Leasing Other 1 Total
- -------------------------------------------------------------------------------------------
REVENUES
Lease revenue. . . . . . . . . . . . $ 4,094 $ 12 $ 291 $ -- $4,397
Interest income and other. . . . . . 13 -- -- 94 107
Net gain on disposition of equipment . 172 108 25 -- 305
--------- ---------- --------- --------- -------
Total revenues. . . . . . . . . . 4,279 120 316 94 4,809
--------- ---------- --------- --------- -------
COSTS AND EXPENSES
Operations support . . . . . . . . . 1,362 -- 207 47 1,616
Depreciation . . . . . . . . . . . . 1,001 17 103 -- 1,121
Management fees to affiliates. . . . 291 1 15 -- 307
General and administrative expenses. 333 -- 57 590 980
Provision for bad debts. . . . . . . (42) -- 9 -- (33)
--------- ---------- --------- --------- -------
Total costs and expenses . . . . 2,945 18 391 637 3,991
--------- ---------- --------- --------- -------
Equity in net income of an USPE. . . . -- -- -- 40 40
--------- ---------- --------- --------- -------
Net income (loss). . . . . . . . . . . $ 1,334 $ 102 $ (75) $ (503) $ 858
========= ========== ========= ========= =======
Marine Marine
For the nine months ended. . . . . . . Aircraft Railcar Vessel Container Trailer
September 30, 2001. . . . . . Leasing Leasing Leasing Leasing Leasing Other 2 Total
- ---------------------------------------------------------------------------------------------------------------
REVENUES
- --------------------------------------
Lease revenue. . . . . . . . . . . . $ 185 $ 4,864 $ -- $ 20 $ 294 $ -- $5,363
Interest income and other. . . . . . 39 -- -- -- -- 209 248
Gain on disposition of equipment . . 3,694 247 -- 51 23 -- 4,015
--------- -------- --------- ---------- --------- --------- -------
Total revenues. . . . . . . . . . 3,918 5,111 -- 71 317 209 9,626
--------- -------- --------- ---------- --------- --------- -------
COSTS AND EXPENSES
Operations support . . . . . . . . . 104 1,363 -- -- 155 93 1,715
Depreciation . . . . . . . . . . . . 151 1,174 -- 23 116 -- 1,464
Management fees to affiliate . . . . 2 336 -- 1 15 -- 354
General and administrative expenses. 215 178 15 1 64 717 1,190
Provision for bad debts. . . . . . . -- 4 -- -- -- -- 4
--------- -------- --------- ---------- --------- --------- -------
Total costs and expenses . . . . 472 3,055 15 25 350 810 4,727
--------- -------- --------- ---------- --------- --------- -------
Equity in net loss of USPEs. . . . . . -- -- (10) -- -- -- (10)
--------- -------- --------- ---------- --------- --------- -------
Net income (loss). . . . . . . . . . . $ 3,446 $ 2,056 $ (25) $ 46 $ (33) $ (601) $4,889
========= ======== ========= ========== ========= ========= =======
7. Net Income Per Weighted-Average Depositary Unit
----------------------------------------------------
Net income per weighted-average depositary unit was computed by dividing net
income attributable to the limited partners by the weighted-average number of
depositary units deemed outstanding during the period. The weighted-average
number of depositary units deemed outstanding during the three and nine months
ended September 30, 2002 and 2001 was 9,871,210.
_________________________
1 Includes interest income and costs not identifiable to a particular
segment such as certain operations support and general and administrative
expenses and costs related to sold aircraft and marine vessels that were wholly
owned.
2 Includes certain interest income and costs not identifiable to a
particular segment such as certain operations support and general and
administrative expenses. Also includes the equity in the loss of an entity
that owned a marine vessel.
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
8. Liquidation
-----------
On January 1, 2000, the General Partner began the liquidation phase of the
Partnership and commenced an orderly liquidation of the Partnership assets. The
General Partner is marketing the remaining equipment portfolio with the intent
of maximizing sale proceeds. During the liquidation phase of the Partnership,
the equipment will continue to be leased under operating leases until sold. The
amounts reflected for assets and liabilities of the Partnership have not been
adjusted to reflect liquidation values. The equipment portfolio continues to be
carried at the lower of depreciated cost or fair value less cost to dispose.
Although the General Partner estimates that there will be distributions after
liquidation of assets and liabilities, the amounts cannot be accurately
determined prior to actual liquidation of the equipment. Upon final
liquidation, the Partnership will be dissolved.
(this space intentionally left blank)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
- -----------------------
(I) RESULTS OF OPERATIONS
Comparison of PLM Equipment Growth Fund III's (the Partnership's) Operating
- --------------------------------------------------------------------------------
Results for the Three Months Ended September 30, 2002 and 2001
- ------------------------------------------------------------------------
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating and asset-specific insurance expenses) on owned equipment
decreased during the three months ended September 30, 2002 compared to the same
period of 2001. Gains or losses from the sale of equipment, interest and other
income, and certain expenses such as depreciation and general and administrative
expenses relating to the operating segments (see Note 6 to the unaudited
condensed financial statements), are not included in the owned equipment
operation discussion because these expenses are indirect in nature, not a result
of operations but the result of owning a portfolio of equipment. The following
table presents lease revenues less direct expenses by segment (in thousands of
dollars):
For the Three Months
Ended September 30,
2002 2001
====================
Railcars. . . . . $ 825 $ 1,224
Trailers. . . . . 3 48
Marine containers 1 (3)
Aircraft. . . . . -- (77)
Railcars: Railcar lease revenues and direct expenses were $1.3 million and
$0.4 million, respectively, for the quarter ended September 30, 2002 compared to
$1.6 million and $0.4 million for the quarter ended September 30, 2001. The
reduction in lease revenue in 2002 compared to 2001 was due to the disposition
of railcars over the past year. Direct expenses increased $0.1 million in 2002
compared to 2001 due to increased repair and maintenance costs.
Trailers: Trailer lease revenues and direct expenses were $0.1 million and
$0.1 million, respectively, for the quarters ended September 30, 2002 and 2001.
(B) Interest and Other Income
Interest and other income decreased $38,000 in the quarter ended September 30,
2002 compared to the same quarter of 2001 due to a reduction in the average cash
balances in the Partnership.
(C) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $0.8 million for the quarter ended September 30, 2002
increased from $0.7 million for the same period of 2001. Significant variances
are explained as follows:
(i) A $0.2 million increase in general and administrative expenses was due
to increased professional service costs.
(ii) A $0.1 million decrease in depreciation expenses from 2001 levels
reflects the effect of asset dispositions in 2002 and 2001
(D) Gain on Disposition of Owned Equipment
The gain on the disposition of owned equipment for the third quarter of 2002 was
$0.1 million, resulting from the disposition of marine containers and railcars,
with an aggregate net book value of $7,000 for proceeds of $0.1 million. The
gain on the disposition of owned equipment for the third quarter of 2001 was
$31,000, resulting from the disposition of marine containers, trailers, and
railcars, with an aggregate net book value of $19,000 for proceeds of $0.1
million
(E) Net Income
As a result of the foregoing, the Partnership had net income of $0.1 million in
the third quarter of 2002 compared to net income of $0.6 million in the third
quarter of 2001. The Partnership's ability to operate and liquidate assets,
secure leases, and re-lease those assets whose leases expire is subject to many
factors. Therefore, the Partnership's performance in the three months ended
September 30, 2002 is not necessarily indicative of future periods.
Comparison of the Partnership's Operating Results for the Nine Months Ended
- --------------------------------------------------------------------------------
September 30, 2002 and 2001
- -------------------------------
(A) Owned Equipment Operations
Lease revenues less direct expenses on owned equipment decreased during the nine
months ended September 30, 2002 compared to the same period of 2001. The
following table presents lease revenues less direct expenses by segment (in
thousands of dollars):
For the Nine Months
Ended September 30,
2002 2001
===================
Railcars. . . . . $ 2,732 $ 3,501
Trailers. . . . . 84 139
Marine containers 12 20
Aircraft. . . . . -- 81
Railcars: Railcar lease revenues and direct expenses were $4.1 million and
$1.4 million, respectively, for the nine months ended September 30, 2002
compared to $4.9 million and $1.4 million for the same period of 2001. The
reduction in lease revenue in 2002 compared to 2001 was due to the disposition
of railcars over the past year.
Trailers: Trailer lease revenues and direct expenses were $0.3 million and
$0.2 million, respectively, for the nine months ended September 30, 2002 and
2001.
Aircraft: Aircraft lease revenues and direct expenses were $0.2 million and
$0.1 million, respectively, during the nine months ended September 30, 2001.
There were no aircraft lease revenues and expenses in the nine months ended
September 30, 2002 as the Partnership sold its wholly owned aircraft in 2001.
(B) Interest and Other Income
Interest and other income decreased $0.1 million in the nine months ended
September 30, 2002 compared to the same period of 2001 due to a reduction in the
average cash balance in the Partnership.
(C) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $2.4 million for the quarter ended September 30, 2002
decreased from $3.0 million for the same period of 2001. Significant variances
are explained as follows:
(i) A decrease of $0.4 million in depreciation expense in the nine months
ended September 30, 2002 compared to the same period in 2001 reflects the
disposition of Partnership assets during 2002 and 2001.
(ii) A $0.2 million decrease in general and administrative expenses during
the nine months ended September 30, 2002 resulted from the reduction in the size
of the Partnership's equipment portfolio over the last twelve months.
(D) Gain on Disposition of Owned Equipment
The gain on the disposition of owned equipment for the nine months ended
September 30, 2002 was $0.3 million, resulting from the disposition of marine
containers, railcars and trailers, with an aggregate net book value of $0.4
million for proceeds of $0.7 million. The gain on the disposition of equipment
was $4.0 million for the nine months ended September 30, 2001, resulting from
the disposition of aircraft, marine containers, trailers, and railcars with an
aggregate net book value of $1.6 million, for aggregate proceeds of $5.6
million.
(E) Equity in Net Income (Loss) of an Unconsolidated Special-Purpose Entity
(USPE)
Equity in net income (loss) of an USPE represents the Partnership's share of the
net income or loss generated from the operation of jointly owned assets
accounted for under the equity method of accounting. This entity was a single
purpose entity that had no debt. Net income generated from the operation of
jointly owned assets was $40,000 in the nine months ended September 30, 2002
compared to a loss of $10,000 in the same period of 2001.
As of September 30, 2002 and 2001, the Partnership had no remaining interest in
entities that jointly owned equipment. The Partnership's share of revenues and
expenses in jointly owned equipment was $40,000 and $0 in the nine months ended
September 30, 2002, respectively, compared to $6,000 and $16,000, respectively,
for the same period of 2001. The revenue in 2002 primarily related to insurance
proceeds from a marine vessel in which the Partnership previously had an
interest.
(F) Net Income
As a result of the foregoing, the Partnership had net income of $0.9 million in
the nine months ended September 30, 2002 compared to net income of $4.9 million
in the same period of 2001. The Partnership's ability to operate and liquidate
assets, secure leases, and re-lease those assets whose leases expire is subject
to many factors. Therefore, the Partnership's performance in the nine months
ended September 30, 2002 is not necessarily indicative of future periods. In
the nine months ended September 30, 2002, the Partnership distributed $4.7
million to the limited partners or $0.48 per depositary unit.
(II) CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the General Partner
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On a regular basis, the General Partner reviews
these estimates including those related to asset lives and depreciation methods,
impairment of long-lived assets, allowance for doubtful accounts, and
contingencies and litigation. These estimates are based on our historical
experience and on various other assumptions believed to be reasonable under the
circumstances. Actual results may differ from these estimates under different
assumptions or conditions. The General Partner believes, however, that the
estimates, including those for the above-listed items, are reasonable and that
actual results will not vary significantly from the estimated amounts.
The General Partner believes the following critical accounting policies affect
the more signifigant judgments and estimates used in the preparation of our
financial statements:
Asset lives and depreciation methods: The Partnership's primary business
involves the purchase and subsequent lease of long-lived transportation and
related equipment. The General Partner has chosen asset lives that it believes
correspond to the economic life of the related asset. The General Partner has
chosen a deprecation method that it believes matches the benefit to the
Partnership from the asset with the associated costs. These judgments have been
made based on the General Partner's expertise in each equipment segment that the
Partnership operates. If the asset life and depreciation method chosen does not
reduce the book value of the asset to at least the potential future cash flows
from the asset to the Partnership, the Partnership would be required to record a
loss on revaluation. Likewise, if the net book value of the asset was reduced
by an amount greater than the economic value has deteriorated, the Partnership
may record a gain on sale upon final disposition of the asset.
Impairment of long-lived assets: On a regular basis, the General Partner
reviews the carrying value of its equipment to determine if the carrying value
of the assets may not be recoverable in consideration of current economic
conditions. This requires the General Partner to make estimates related to
future cash flows from each asset as well as the determination if the
deterioration is temporary or permanent. If these estimates or the related
assumptions change in the future, the Partnership may be required to record
additional impairment charges.
Allowance for doubtful accounts: The Partnership maintains allowances for
doubtful accounts for estimated losses resulting from the inability of the
lessees to make the lease payments. These estimates are primarily based on the
amount of time that has lapsed since the related payments were due as well as
specific knowledge related to the ability of the lessees to make the required
payments. If the financial condition of the Partnership's lessees were to
deteriorate, additional allowances could be required that would reduce income.
Conversely, if the financial condition of the lessees were to improve or if
legal remedies to collect past due amounts were successful, the allowance for
doubtful accounts may need to be reduced and income would be increased.
Contingencies and litigation: The Partnership is subject to legal proceedings
involving ordinary and routine claims related to its business. The ultimate
legal and financial liability with respect to such matters cannot be estimated
with certainty and requires the use of estimates in recording liabilities for
potential litigation settlements. Estimates for losses from litigation are made
after consultation with outside counsel. If estimates of potential losses
increase or the related facts and circumstances change in the future, the
Partnership may be required to record additional litigation expense.
(III) FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
For the nine months ended September 30, 2002, the Partnership generated $1.5
million in operating cash (net cash provided by operating activities plus
non-liquidating distributions from an USPE) to meet its operating obligations
and fund distributions (a total of $5.0 million for the nine months ended
September 30, 2002) but also used undistributed available cash from prior
periods and proceeds from equipment dispositions of $3.5 million.
During the nine months ended September 30, 2002, the Partnership sold equipment
and received aggregate proceeds of $0.7 million.
During the nine months ended September 30, 2002, accounts receivable decreased
$0.1 million due the decrease in the size of the Partnership's equipment
portfolio.
During the nine months ended September 30, 2002, accounts payable and accrued
expenses decreased $0.2 million due to the payment of $0.2 million for an
aircraft repair that was accrued for as of December 31, 2001.
The General Partner has not planned any expenditures, nor is it aware of any
contingencies that would cause the Partnership to require any additional
capital.
The Partnership is in its active liquidation phase. As a result, the size of
the Partnership's remaining equipment portfolio and, in turn, the amount of net
cash flows from operations will continue to become progressively smaller as
assets are sold. Significant asset sales may result in special distributions to
the partners.
The amounts reflected for assets and liabilities of the Partnership have not
been adjusted to reflect liquidation values. The equipment portfolio that is
actively being marketed for sale by the General Partner continues to be carried
at the lower of depreciated cost or fair value less cost of disposal. Although
the General Partner estimates that there will be distributions to the partners
after final disposal of assets and settlement of liabilities, the amounts cannot
be accurately determined prior to actual disposal of the equipment.
(IV) OUTLOOK FOR THE FUTURE
The Partnership entered its liquidation phase on January 1, 2000. The General
Partner is seeking to selectively re-lease or sell assets as the existing leases
expire. Sale decisions may cause the operating performance of the Partnership
to decline over the remainder of its life. The General Partner filed a
certificate of dissolution on behalf of the Partnership with the Secretary of
State for the State of California in December 2000, and following completion of
the liquidation of the Partnership, the General Partner will file a certificate
of cancellation.
The Partnership has received an offer for the Partnership railcar portfolio,
which represents 76% of the Partnership's equipment net book value. The offer
is in excess of the carrying value of the equipment. Due diligence is being
performed on the railcar portfolio by the offering entity. At this time, no
assurances can be made that the offer will be consummated.
Several factors may affect the Partnership's operating performance in the
remainder of 2002 and beyond, including changes in the markets for the
Partnership's equipment and changes in the regulatory environment in which that
equipment operates.
Liquidation of the Partnership's equipment will cause a reduction in the size of
the equipment portfolio and may result in a reduction of contribution to the
Partnership. Other factors affecting the Partnership's contribution in the year
2002 include:
1. The Partnership's fleet of marine containers is in excess of twelve years
of age and is no longer suitable for use in international commerce either due to
its specific physical condition, or lessee's preferences for newer equipment.
Demand for the Partnership's marine containers will continue to be weak due to
their age.
2. Through the first nine months of 2002, U.S. and Canadian freight carloads
decreased 1% and 3% respectively, compared to the same period of 2001. There
has been, however, some recent increase in some of the commodities, which drive
demand for those types of railcars most prevalent in the partnership's fleet.
It will be some time, however, before this translates into new leasing demand by
shippers since most shippers have idle cars in their fleets.
3. Utilization of intermodal trailers owned by the Partnership decreased 15%
in the nine months ended September 30, 2002 compared to the nine months ended
September 30, 2001. The decline was similar to the decline in industry wide
utilization. As the Partnership's trailers are smaller than many shippers
prefer, the General Partner expects continued declines in utilization over the
next few years. Additionally, one of the major shippers that leased the
Partnership's trailers has entered bankruptcy. While the Partnership did not
have any outstanding receivables from the company, its bankruptcy may cause a
further decline in performance of the trailer fleet in the future.
The ability of the Partnership to realize acceptable lease rates on its
equipment in the different equipment markets is contingent on many factors, such
as specific market conditions and economic activity, technological obsolescence,
and government or other regulations. The unpredictability of these factors, or
of their occurrence, makes it difficult for the General Partner to clearly
define trends or influences that may impact the performance of the Partnership's
equipment. The General Partner continually monitors both the equipment markets
and the performance of the Partnership's equipment in these markets. The
General Partner may decide to reduce the Partnership's exposure to those
equipment markets in which it determines that it cannot operate equipment and
achieve acceptable rates of return.
The Partnership intends to use cash flow from operations and proceeds from
disposition of equipment to satisfy its operating requirements, maintain working
capital reserves, and pay cash distributions to the unitholders.
(V) FORWARD-LOOKING INFORMATION
Except for the historical information contained herein, this Form 10-Q contains
forward-looking statements that involve risks and uncertainties, such as
statements of the Partnership's plans, objectives, expectations, and intentions.
The cautionary statements made in this Form 10-Q should be read as being
applicable to all related forward-looking statements wherever they appear in
this Form 10-Q. The Partnership's actual results could differ materially from
those discussed here.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------------
The Partnership's primary market risk exposure is currency devaluation risk.
During the nine months ended September 30, 2002, 67% of the Partnership's total
lease revenues equipment came from non-United States domiciled lessees. Most of
the Partnership's leases require payment in United States (U.S) currency. If
these lessees' currency devalues against the U.S. dollar, the lessees could
potentially encounter difficulty in making the U.S. dollar denominated lease
payments.
ITEM 4. CONTROLS AND PROCEDURES
-------------------------
Within the 90-day period prior to the filing of this report, evaluations were
carried out under the supervision and with the participation of the General
Partner's management, including its President and Chief Financial Officer, of
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of
1934). Based upon those evaluations, the President and Chief Financial Officer
concluded that the design and operation of these disclosure controls and
procedures were effective. No significant changes have been made in the
Partnership's internal controls or in other factors that could significantly
affect these controls subsequent to the date of the evaluations.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-------------------------------------
(a) Exhibits
--------
None.
(b) Reports on Form 8-K
----------------------
None.
(This space intentionally left blank)
CONTROL CERTIFICATION
- ----------------------
I, James A. Coyne, certify that:
1. I have reviewed this quarterly report on Form 10-Q of PLM Equipment
Growth Fund III.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others,
particularly during the period in which this quarterly report is prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and board of Managers:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 11, 2002 By: /s/ James A. Coyne
---------------------
James A. Coyne
President
(Principal Executive Officer)
- ------
CONTROL CERTIFICATION
- ----------------------
I, Richard K Brock, certify that:
5. I have reviewed this quarterly report on Form 10-Q of PLM Equipment
Growth Fund III.
6. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
7. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
8. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
d) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others,
particularly during the period in which this quarterly report is prepared;
e) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
f) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and board of Managers:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 11, 2002 By: /s/ Richard K Brock
----------------------
Richard K Brock
Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLM EQUIPMENT GROWTH FUND III
By: PLM Financial Services, Inc.
General Partner
Date: November 11, 2002 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 III (the Partnership), that the Quarterly
Report of the Partnership on Form 10-Q for the period ended September 30, 2002,
fully complies with the requirements of Section 13(a) of the Securities Exchange
Act of 1934 and that the information contained in such report fairly presents,
in all material respects, the financial condition of the Partnership at the end
of such period and the results of operations of the Partnership for such period.
PLM EQUIPMENT GROWTH FUND III
By: PLM Financial Services, Inc.
General Partner
Date: November 11, 2002 By: /s/ James A. Coyne
---------------------
James A. Coyne
President
Date: November 11, 2002 By: /s/ Richard K Brock
----------------------
Richard K Brock
Chief Financial Officer