-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SOYLav/IMPaG8zlcZvZONkKLr08pRE200Foir+KODNkJgX245aXcihBYmS2Sg6FK XWlnXJGRnfFWw6fAhQvlWQ== 0000812072-02-000024.txt : 20020507 0000812072-02-000024.hdr.sgml : 20020507 ACCESSION NUMBER: 0000812072-02-000024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLM EQUIPMENT GROWTH FUND III CENTRAL INDEX KEY: 0000824210 STANDARD INDUSTRIAL CLASSIFICATION: WATER TRANSPORTATION [4400] IRS NUMBER: 680146197 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10813 FILM NUMBER: 02636941 BUSINESS ADDRESS: STREET 1: STEUART ST TOWER STE 900 STREET 2: C/O ONE MARKET PLAZA CITY: SAN FRANCISCO STATE: CA ZIP: 94105 BUSINESS PHONE: 4159741399 MAIL ADDRESS: STREET 1: ONE MARKET STEUART STREET TWR STREET 2: STE 900 CITY: SAN FRANCISCO STATE: CA ZIP: 94105 10-Q 1 f10q_1q2002-egf3.txt Q1 2002 EQUIPMENT GROWTH FUND 3 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 March 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 (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.) 120 Montgomery Street, Suite 1350, San Francisco, CA 94104 (Address of principal (Zip code) executive offices) Registrant's telephone number, including area code: (415) 445-3201 ----------------------- 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)
March 31, December 31, 2002 2001 ------------------------------------ ASSETS Equipment held for operating leases at cost $ 31,841 $ 37,731 Less accumulated depreciation (28,722) (33,833) ----------------------------------- Net equipment 3,119 3,898 Cash and cash equivalents 4,681 10,141 Accounts receivable, net of allowance for doubtful accounts of $501 in 2002 and $518 in 2001 2,104 420 Prepaid expenses and other assets 65 23 ----------------------------------- Total assets` $ 9,969 $ 14,482 =================================== LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accounts payable and accrued expenses $ 185 $ 416 Due to affiliates 87 66 Lessee deposits and reserves for repairs 9 29 ----------------------------------- Total liabilities 281 511 ----------------------------------- Partners' capital: Limited partners (9,871,210 depositary units as of March 31, 2002 and December 31, 2001) 9,688 13,971 General Partner -- -- ----------------------------------- Total partners' capital 9,688 13,971 ----------------------------------- Total liabilities and partners' capital $ 9,969 $ 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 Ended March 31, 2002 2001 --------------------------- REVENUES Lease revenue $ 1,607 $ 1,970 Interest and other income 39 53 Net gain on disposition of equipment 172 3,842 --------------------------- Total revenues 1,818 5,865 --------------------------- EXPENSES Depreciation and amortization 386 601 Repairs and maintenance 439 560 Equipment operating expenses 8 8 Insurance expenses 21 71 Management fees to affiliate 111 119 General and administrative expenses to affiliates 60 164 Other general and administrative expenses 139 429 (Recovery of) provision for bad debts (17) 30 --------------------------- Total expenses 1,147 1,982 --------------------------- Equity in net income (loss) of unconsolidated special-purpose entity 34 (10) --------------------------- Net income $ 705 $ 3,873 =========================== PARTNERS' SHARE OF NET INCOME Limited partners $ 456 $ 3,873 General Partner 249 -- --------------------------- Total $ 705 $ 3,873 =========================== Limited partners' net income per weighted-average depositary unit $ 0.05 $ 0.39 =========================== Cash distributions $ 4,988 $ -- =========================== Cash distributions per limited partners' weighted-average depository unit: $ 0.48 $ -- ===========================
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 March 31, 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 456 249 705 Cash distribution (4,739) (249) (4,988) ----------------------------------------------- Partners' capital as of March 31, 2002 $ 9,688 $ -- $ 9,688 ===============================================
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 Three Months Ended March 31, 2002 2001 ---------------------------- OPERATING ACTIVITIES Net income $ 705 $ 3,873 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 386 601 Net gain on disposition of equipment (172) (3,842) Equity in net (income) loss from unconsolidated special-purpose entity (34) 10 Changes in operating assets and liabilities: Accounts receivables, net 56 (485) Restricted cash -- 125 Prepaid expenses and other assets (42) (21) Accounts payable and accrued expenses (231) (102) Due to affiliates 21 34 Lessee deposits and reserves for repairs (20) (185) ---------------------------- Net cash provided by operating activities 669 8 ---------------------------- INVESTING ACTIVITIES Payments for capitalized improvements (7) (44) Distributions from unconsolidated special-purpose entity 34 66 Proceeds from disposition of equipment 77 5,422 ---------------------------- Net cash provided by investing activities 104 5,444 ---------------------------- FINANCING ACTIVITIES Refundable payment made to transfer agent (1,245) -- Cash distribution paid to limited partners (4,739) -- Cash distribution paid to General Partner (249) -- ---------------------------- Net cash used in financing activities (6,233) -- ---------------------------- Net (decrease) increase in cash and cash equivalents (5,460) 5,452 Cash and cash equivalents at beginning of period 10,141 1,832 ---------------------------- Cash and cash equivalents at end of period $ 4,681 $ 7,284 ============================
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 March 31, 2002 and December 31, 2001, the unaudited condensed statements of income for the three months ended March 31, 2002 and 2001, the unaudited condensed statements of changes in partners' capital for the period from December 31, 2000 to March 31, 2002, and the unaudited condensed statements of cash flows for the three months ended March 31, 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 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. 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. 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 months ended March 31, 2002, cash distributions totaled $5.0 million. Cash distributions to the limited partners of $4.3 million for the three months ended March 31, 2002 were deemed to be a return of capital. There were no cash distributions during the three months ended March 31, 2001. 4. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES The balance due to affiliates as of March 31, 2002 and December 31, 2001 included $0.1 million due to FSI and its affiliate for management fees. The Partnership did not incur any expenses to affiliates by jointly owned equipment during the first quarter of 2002.The Partnership's proportional share of the expenses incurred by an unconsolidated special-purpose entity (USPE) during the first quarter of 2001 was $10,000. 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):
March 31, December 31, 2002 2001 -------------------------------------- Railcars $ 27,864 $ 32,305 Trailers 2,473 3,036 Marine containers 1,504 2,390 ------------------------------------- 31,841 37,731 Less accumulated depreciation (28,722) (33,833) ------------------------------------- Net equipment $ 3,119 $ 3,898 =====================================
As of March 31, 2002, all equipment in the Partnership portfolio was on lease except for 107 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 March 31, 2001 and December 31, 2000. Capital improvements to the Partnership's equipment of $7,000 and $44,000 were made during the three months ended March 31, 2002 and 2001, respectively. During the three months ended March 31, 2002, the Partnership disposed of marine containers, trailers, and railcars, with an aggregate net book value of $0.4 million for aggregate proceeds of $0.6 million. During the three months ended March 31, 2001, the Partnership disposed of aircraft, marine containers, trailers, and railcars, with an aggregate net book value of $1.6 million for aggregate proceeds of $5.4 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 segment of equipment leasing engages in short-term and mid-term operating leases to a variety of customers. The following tables present a summary of the operating segments (in thousands of dollars):
Marine For the three months ended Railcar Container Trailer All March 31, 2002 Leasing Leasing Leasing Other(1) Total -------------- ------- ------- ------- ------ ----- REVENUES Lease revenue $ 1,479 $ 7 $ 121 $ -- $ 1,607 Interest income and other 13 -- -- 26 39 Gain on disposition of equipment 97 50 25 -- 172 ---------------------------------------------------- Total revenues 1,589 57 146 26 1,818 ---------------------------------------------------- COSTS AND EXPENSES Operations support 386 -- 66 16 468 Depreciation 345 6 35 -- 386 Management fees to affiliates 105 -- 6 -- 111 General and administrative 84 -- 19 96 199 expenses Provision for (recovery of) bad (26) -- 9 -- (17) debts ---------------------------------------------------- Total costs and expenses 894 6 135 112 1,147 ---------------------------------------------------- Equity in net income of an USPE -- -- -- 34 34 ---------------------------------------------------- Net income (loss) $ 695 $ 51 $ 11 $ (52) $ 705 ==================================================== Total assets as of March 31, 2002 $ 3,179 $ 42 $ 757 $ 5,991 $ 9,969 ====================================================
Marine For the three months ended Aircraft Railcar Container Trailer March 31, 2001 Leasing Leasing Leasing Leasing All Other(2) Total -------------- ------- ------- ------- ------- ------- ----- REVENUES Lease revenue $ 185 $ 1,680 $ 12 $ 93 $ -- $ 1,970 Interest income and other 6 -- -- -- 47 53 Net gain on disposition of 3,699 90 32 21 -- 3,842 equipment -------------------------------------------------------------- Total revenues 3,890 1,770 44 114 47 5,865 -------------------------------------------------------------- COSTS AND EXPENSES Operations support 25 509 -- 45 60 639 Depreciation and amortization 151 395 9 46 -- 601 Management fees to affiliates 2 111 1 5 -- 119 General and administrative expenses 147 52 -- 20 374 593 Provision of bad debts -- 30 -- -- -- 30 -------------------------------------------------------------- Total costs and expenses 325 1,097 10 116 434 1,982 -------------------------------------------------------------- Equity in net loss of an USPE -- -- -- -- (10) (10) -------------------------------------------------------------- Net income (loss) $ 3,565 $ 673 $ 34 $ (2) $ (397) $ 3,873 ==============================================================
- ------------------------- (1) Includes certain assets not identifiable to a particular segment, such as cash, prepaid expenses and certain accounts receivable. Also includes certain interest income and costs not identifiable to a particular segment such as certain operations support and general and administrative expenses. Also includes the equity in the income of an entity that owned a marine vessel. (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) 7. NET INCOME PER WEIGHTED-AVERAGE DEPOSITORY UNIT Net income per weighted-average depository unit was computed by dividing net income attributable to the limited partners by the weighted-average number of depository units deemed outstanding during the period. The weighted-average number of depository units deemed outstanding during the three months ended March 31, 2002 and 2001 was 9,871,210. 8. CONTINGENCIES The Partnership, together with affiliates, has initiated litigation in various official forums in India and the United States against two defaulting Indian airline lessees to repossess Partnership property and to recover damages for failure to pay rent and failure to maintain such property in accordance with the relevant lease contracts. The Partnership has repossessed all of its property previously leased to these airlines, causing one of the airline lessees to cease operations. In response to the Partnership's collection efforts, the airline lessees filed counter-claims against the Partnership in excess of the Partnership's claims against the airlines. The General Partner believes that the airlines' counterclaims are completely without merit, and the General Partner will vigorously defend against such counterclaims. During 2001, an arbitration between one Indian lessee and the Partnership took place and the Partnership was awarded a settlement. The General Partner and the lessee are in the process of negotiating the settlement in a manner that benefits all parties involved. The General Partner decided not to accrue the amount of the settlement because collection of the settlement is remote. The General Partner will continue to try to collect the full amount of the settlement. During 2001, the General Partner has decided to minimize its collection efforts from the other Indian lessee in order to save the Partnership from incurring additional expenses associated with trying to collect from a lessee that has a limited ability to pay. The Partnership is involved as plaintiff or defendant in various legal actions incidental to its business. Management does not believe that any of these actions will be material to the financial condition or results of operations of the Partnership. 9. LIQUIDATION AND SPECIAL DISTRIBUTIONS On January 1, 2000, the General Partner began the liquidation phase of the Partnership and commenced an orderly liquidation of the Partnership assets. The General Partner is actively marketing the remaining equipment portfolio with the intent of maximizing sale proceeds. During the liquidation phase of the Partnership the equipment will continue to be leased under operating leases until sold. The amounts reflected for assets and liabilities of the Partnership have not been adjusted to reflect liquidation values. The equipment portfolio continues to be carried at the lower of depreciated cost or fair value less cost to dispose. Although the General Partner estimates that there will be distributions after liquidation of assets and liabilities, the amounts cannot be accurately determined prior to actual liquidation of the equipment. Upon final liquidation, the Partnership will be dissolved. The Partnership is not permitted to reinvest proceeds from the disposition of equipment. These proceeds, in excess of operational cash requirements, are periodically paid out to limited partners in the form of special distributions. No special distributions were paid in the first quarter of 2002 and 2001. The sales and liquidations occur because of the determination by the General Partner that it is the appropriate time to maximize the return on an asset through sale of that asset, and, in some leases, the ability of the lessee to exercise purchase options. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (I) RESULTS OF OPERATIONS COMPARISON OF PLM EQUIPMENT GROWTH FUND III'S (THE PARTNERSHIP'S) OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001 (A) Owned Equipment Operations Lease revenues less direct expenses (defined as repairs and maintenance, equipment operating and asset-specific insurance expenses) on owned equipment decreased during the three months ended March 31, 2002 compared to the same period of 2001. Gains or losses from the sale of equipment, interest and other income, and certain expenses such as depreciation and amortization and general and administrative expenses relating to the operating segments (see Note 6 to the unaudited condensed financial statements), are not included in the owned equipment operation discussion because these expenses are indirect in nature, not a result of operations but the result of owning a portfolio of equipment. The following table presents lease revenues less direct expenses by segment (in thousands of dollars):
For the Three Months Ended March 31, 2002 2001 ------------------------------------- Railcars $ 1,093 $ 1,171 Trailers 55 48 Marine containers 7 12 Aircraft -- 160
Railcars: Railcar lease revenues and direct expenses were $1.5 million and $0.4 million, respectively, for the quarter ended March 31, 2002 compared to $1.7 million and $0.5 million for the quarter ended March 31, 2001. The reduction in lease revenue and direct expenses in 2002 compared to 2001 was due to the disposition of railcars over the past year. Trailers: Trailer lease revenues and direct expenses were $0.1 million and $0.1 million, respectively, for the quarter ended March 31, 2002, compared to $0.1 million and $45,000, respectively, during the same period of 2001. Aircraft: Aircraft lease revenues and direct expenses were $0.2 million and $25,000, respectively, during the quarter ended March 31, 2001. There were no aircraft lease revenues and expenses in the quarter ended March 31, 2002 as the Partnership sold its wholly owned aircraft in 2001. (B) Indirect Expenses Related to Owned Equipment Operations Total indirect expenses of $0.7 million for the quarter ended March 31, 2002 decreased from $1.3 million for the same period of 2001. Significant variances are explained as follows: (i) A $0.4 million decrease in general and administrative expenses was due to a $0.2 million reduction in professional services in the first quarter of 2002 compared to the same period of 2001 and a $0.1 million reduction in allocations from the General Partner due to the reduction in the size of the equipment portfolio. (ii) A decrease of $0.2 million in depreciation and amortization expenses in the first quarter of 2002 compared to the same period in 2001 reflects the disposition of Partnership assets during 2002 and 2001. (C) Net Gain on Disposition of Owned Equipment The net gain on the disposition of owned equipment for the first quarter of 2002 was $0.2 million, resulting from the disposition of marine containers, railcars and trailers, with an aggregate net book value of $0.4 million for aggregate proceeds of $0.6 million. The net gain on the disposition of owned equipment for the first quarter of 2001 was $3.8 million, resulting from the disposition of aircraft, marine containers, railcars and trailers, with an aggregate net book value of $1.6 million for aggregate proceeds of $5.4 million. (D) Equity in Net Income (Loss) of an Unconsolidated Special-Purpose Entity (USPE) Equity in net income (loss) of USPEs represents the Partnership's share of the net income (loss) generated from the operation of jointly-owned assets accounted for under the equity method of accounting. This entity was a single purpose entity that had no debt. Net income generated from the operation of jointly-owned assets was $34,000 in the quarter ended March 31, 2002 compared to a loss of $10,000 in the same period of 2001. As of March 31, 2002 and 2001, the Partnership had no remaining interest in entities that owned equipment. The Partnership's share of revenues and expenses in jointly owned equipment was $34,000 and $0, respectively compared to $6,000 and $16,000, respectively, for the quarter ended March 31, 2001 The revenue in 2002 related to insurance proceeds from a marine vessel in which the Partnership previously had an interest. (E) Net Income As a result of the foregoing, the Partnership had net income of $0.7 million in the first quarter of 2002 compared to net income of $3.9 million in the first 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 March 31, 2002 is not necessarily indicative of future periods. In the first quarter of 2002, the Partnership distributed $4.7 million to the limited partners or $0.48 per depository unit. (II) CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the General Partner to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On a regular basis, the General Partner reviews these estimates including those related to asset lives and depreciation methods, impairment of long-lived assets, allowance for doubtful accounts, and contingencies and litigation. These estimates are based on our historical experience and on various other assumptions believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The General Partner believes, however, that the estimates, including those for the above-listed items, are reasonable and that actual results will not vary significantly from the estimated amounts. The General Partner believes the following critical accounting policies affect the more signifigant judgments and estimates used in the preparation of our financial statements: Asset lives and depreciation methods: The Partnership's primary business involves the purchase and subsequent lease of long-lived transportation and related equipment. The General Partner has chosen asset lives that it believes correspond to the economic life of the related asset. The General Partner has chosen a deprecation method that it believes matches the benefit to the Partnership from the asset with the associated costs. These judgments have been made based on the General Partner's expertise in each equipment segment that the Partnership operates. If the asset life and depreciation method chosen does not reduce the book value of the asset to at least the potential future cash flows from the asset to the Partnership, the Partnership would be required to record a loss on revaluation. Likewise, if the net book value of the asset was reduced by an amount greater than the economic value has deteriorated, the Partnership may record a gain on sale upon final disposition of the asset. Impairment of long-lived assets: On a regular basis, the General Partner reviews the carrying value of its equipment and investments in USPEs to determine if the carrying value of the assets may not be recoverable in consideration of current economic conditions. This requires the General Partner to make estimates related to future cash flows from each asset as well as the determination if the deterioration is temporary or permanent. If these estimates or the related assumptions change in the future, the Partnership may be required to record additional impairment charges. Allowance for doubtful accounts: The Partnership maintains allowances for doubtful accounts for estimated losses resulting from the inability of the lessees to make the lease payments. These estimates are primarily based on the amount of time that has lapsed since the related payments were due as well as specific knowledge related to the ability of the lessees to make the required payments. If the financial condition of the Partnership's lessees were to deteriorate, additional allowances could be required that would reduce income. Conversely, if the financial condition of the lessees were to improve or if legal remedies to collect past due amounts were successful, the allowance for doubtful accounts may need to be reduced and income would be increased. Contingencies and litigation: The Partnership is subject to legal proceedings involving ordinary and routine claims related to its business. The ultimate legal and financial liability with respect to such matters cannot be estimated with certainty and requires the use of estimates in recording liabilities for potential litigation settlements. Estimates for losses from litigation are made after consultation with outside counsel. If estimates of potential losses increase or the related facts and circumstances change in the future, the Partnership may be required to record additional litigation expense. (III) FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS For the three months ended March 31, 2002, the Partnership generated $0.7 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 (total of $5.0 million for the three months ended March 31, 2002,) but also used undistributed available cash from prior periods and proceeds from equipment dispositions of $4.2 million. During the three months ended March 31, 2002, the Partnership sold owned equipment and received aggregate proceeds of $0.1 million. During the three months ended March 31, 2002, accounts receivable increased $1.7 million due to an increase of $1.2 million related to a receivable from the Partnership's transfer agent related to an over funding of the first quarter distribution and to $0.5 million in receivables related to asset dispositions being outstanding on March 31, 2002. Similar receivables were not outstanding at December 31, 2001. During the three months ended March 31, 2002, accounts payable and accrued expenses decreased $0.2 million due to the payment of $0.2 million in the first quarter of 2002 for an aircraft repair that was accrued for as of December 31, 2001. The General Partner has not planned any expenditure, nor is it aware of any contingencies that would cause the Partnership to require any additional capital. The Partnership is in its active liquidation phase. As a result, the size of the Partnership's remaining equipment portfolio and, in turn, the amount of net cash flows from operations will continue to become progressively smaller as assets are sold. Significant asset sales may result in special distributions to the partners. The amounts reflected for assets and liabilities of the Partnership have not been adjusted to reflect liquidation values. The equipment portfolio that is actively being marketed for sale by the General Partner continues to be carried at the lower of depreciated cost or fair value less cost of disposal. Although the General Partner estimates that there will be distributions to the partners after final disposal of assets and settlement of liabilities, the amounts cannot be accurately determined prior to actual disposal of the equipment. (IV) OUTLOOK FOR THE FUTURE The Partnership entered its liquidation phase on January 1, 2000. The General Partner is seeking to selectively re-lease or sell assets as the existing leases expire. Sale decisions may cause the operating performance of the Partnership to decline over the remainder of its life. The General Partner filed a certificate of dissolution on behalf of the Partnership with the Secretary of State for the State of California in December 2000, and following completion of the liquidation of the Partnership, the General Partner will file a certificate of cancellation. Several factors may affect the Partnership's operating performance in the remainder of 2002 and beyond, including changes in the markets for the Partnership's equipment and changes in the regulatory environment in which that equipment operates. Liquidation of the Partnership's equipment will cause a reduction in the size of the equipment portfolio and may result in a reduction of contribution to the Partnership. Other factors affecting the Partnership's contribution in the year 2002 include: 1. The Partnership's fleet of both standard dry and specialized marine containers is in excess of twelve years of age and is generally no longer suitable for use in international commerce either due to its specific physical condition, or lessees preferences for newer equipment. Demand for the Partnership's marine containers will continue to be weak due to their age. 2. Railcar loadings in North America have weakened over the past year. Utilization and lease rates have been decreasing over this period. Railcar contribution may decrease in 2002 as existing leases expire and renewal leases are negotiated. 3. Industry-wide utilization of intermodal trailers decreased 8% in the first quarter of 2002 compared to the first quarter of 2001. This has led to lower contribution from the Partnership's trailers as existing leases expire and renewals are negotiated. The ability of the Partnership to realize acceptable lease rates on its equipment in the different equipment markets is contingent on many factors, such as specific market conditions and economic activity, technological obsolescence, and government or other regulations. The unpredictability of these factors, or of their occurrence, makes it difficult for the General Partner to clearly define trends or influences that may impact the performance of the Partnership's equipment. The General Partner continually monitors both the equipment markets and the performance of the Partnership's equipment in these markets. The General Partner may decide to reduce the Partnership's exposure to those equipment markets in which it determines that it cannot operate equipment and achieve acceptable rates of return. The Partnership intends to use cash flow from operations and proceeds from disposition of equipment to satisfy its operating requirements, maintain working capital reserves, and pay cash distributions to the unitholders. (V) FORWARD-LOOKING INFORMATION Except for the historical information contained herein, this Form 10-Q contains forward-looking statements that involve risks and uncertainties, such as statements of the Partnership's plans, objectives, expectations, and intentions. The cautionary statements made in this Form 10-Q should be read as being applicable to all related forward-looking statements wherever they appear in this Form 10-Q. The Partnership's actual results could differ materially from those discussed here. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Partnership's primary market risk exposure is currency devaluation risk. During the first quarter of 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 currency. If these lessees' currency devalues against the U.S. dollar, the lessees could potentially encounter difficulty in making the U.S. dollar denominated lease payments. PART II -- OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None. (b) Reports on Form 8-K None. (This space intentionally left blank) Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PLM EQUIPMENT GROWTH FUND III By: PLM Financial Services, Inc. General Partner Date: May 7, 2002 By: /s/ Stephen M. Bess ---------------------------------------- Stephen M. Bess President and Current Chief Accounting Officer -----END PRIVACY-ENHANCED MESSAGE-----