UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended September 30, 1996.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 0-15436
-----------------------
PLM EQUIPMENT GROWTH FUND
(Exact name of registrant as specified in its charter)
California 94-2998816
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Market, Steuart Street Tower,
Suite 800, San Francisco, CA 94105-1301
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code (415) 974-1399
-----------------------
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 ______
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
BALANCE SHEETS
(in thousands, except unit amounts)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------------------------------
<S> <C> <C>
Equipment held for operating leases, at cost $ 45,873 $ 52,762
Less accumulated depreciation (33,914 ) (36,198)
----------------------------------
11,959 16,564
Equipment held for sale -- 2,298
----------------------------------
Net equipment 11,959 18,862
Cash and cash equivalents 3,423 1,474
Restricted cash 110 332
Investments in unconsolidated special purpose entities 7,028 16,871
Accounts receivable, less allowance for doubtful accounts
of $75 at September 30, 1996, and $55 at December 31, 1995 955 1,282
Prepaid expenses and other assets 2 85
Deferred charges, net of accumulated amortization of
$56 at September 30, 1996, and $17 at December 31, 1995 116 155
----------------------------------
Total assets $ 23,593 $ 39,061
==================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 297 $ 665
Due to affiliates 126 100
Security deposits 110 126
Prepaid deposits and reserve for repairs 747 836
Notes payable 2,000 23,000
----------------------------------
Total liabilities 3,280 24,727
Partners' capital (deficit):
Limited Partners (5,785,350 Depositary Units
at September 30, 1996, and 5,810,150 Depositary
Units at December 31, 1995) 20,527 14,609
General Partner (214 ) (275)
----------------------------------
Total partners' capital 20,313 14,334
----------------------------------
Total liabilities and partners' capital $ 23,593 $ 39,061
==================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
STATEMENTS OF INCOME
(in thousands, except per unit amounts)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
1996 1995 1996 1995
------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Lease revenue $ 2,279 $ 4,829 $ 7,662 $ 16,051
Interest and other income 145 477 235 648
Net gain on disposition of equipment 271 256 13,164 2,047
------------------------------------------------------------
Total revenues 2,695 5,562 21,061 18,746
Expenses:
Depreciation and amortization 661 2,038 2,511 6,518
Management fees to affiliate 196 331 713 1,014
Repairs and maintenance 562 618 1,620 1,785
Interest expense 246 517 909 1,589
Insurance expense to affiliate 1 37 1 168
Other insurance expense 15 50 58 250
Marine equipment operating expenses -- 513 -- 1,819
General and administrative expenses to affiliate 148 177 555 598
Other general and administrative expenses 166 341 423 635
------------------------------------------------------------
Total expenses 1,995 4,622 6,790 14,376
Equity in net income of unconsolidated
special purpose entities 9,016 -- 8,866 --
------------------------------------------------------------
Net income $ 9,716 $ 940 $ 23,137 $ 4,370
============================================================
Partners' share of net income:
Limited Partners $ 9,620 $ 906 $ 22,907 $ 4,268
General Partner 96 34 230 102
------------------------------------------------------------
Total $ 9,716 $ 940 $ 23,137 $ 4,370
============================================================
Net income per Depositary
Unit (5,785,350 Units at September
30, 1996; 5,820,150 Units at
September 30, 1995) $ 1.66 $ 0.16 $ 3.96 $ 0.73
============================================================
Cash distributions $ 1,690 $ 3,380 $ 6,753 $ 10,169
============================================================
Cash distributions per Depositary Unit $ 0.29 $ 0.58 $ 1.15 $ 1.73
============================================================
Special distributions $ 5,844 $ -- $ 10,242 $ --
============================================================
Special distributions per Depositary Unit $ 1.00 $ -- $ 1.75 $ --
============================================================
Total distributions per Depositary Unit $ 1.29 $ 0.58 $ 2.90 $ 1.73
============================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the period from December 31, 1994 through September
30, 1996
(in thousands)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
------------------------------------------------------
<S> <C> <C> <C>
Partners' capital (deficit) at December 31, 1994 $ 24,374 $ (311 ) $ 24,063
Net income 4,063 171 4,234
Repurchase of Depositary Units (414 ) -- (414 )
Cash distributions (13,414 ) (135 ) (13,549 )
-----------------------------------------------------
Partners' capital (deficit) at December 31, 1995 14,609 (275 ) 14,334
Net income 22,907 230 23,137
Repurchase of Depositary Units (163 ) -- (163 )
Cash distributions (6,686 ) (67 ) (6,753 )
Special distributions (10,140 ) (102 ) (10,242 )
-----------------------------------------------------
Partners' capital (deficit) at September 30, 1996 $ 20,527 $ (214 ) $ 20,313
=====================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
1996 1995
----------------------------------
<S> <C> <C>
Operating activities:
Net income $ 23,137 $ 4,370
Adjustment to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 2,511 6,518
Net gain on disposition of equipment (13,164 ) (2,047 )
Income from unconsolidated special purpose entities
in excess of cash distributions (7,682 ) --
Changes in operating assets and liabilities:
Accounts receivable, net 428 396
Due to affiliates 26 (96 )
Prepaid expenses and other assets (18 ) 87
Deferred charges, net -- (172 )
Restricted cash 137 331
Accounts payable and accrued expenses (368 ) (503 )
Security deposits (16 ) (331 )
Prepaid deposits and reserve for repairs (89 ) (353 )
---------------------------------
Net cash provided by operating activities 4,902 8,200
---------------------------------
Investing activities:
Payments for capital improvements (59 ) (43 )
Proceeds from disposition of equipment 17,654 6,921
Liquidation proceeds from unconsolidated special
purpose entities 17,525 --
---------------------------------
---------------------------------
Net cash provided by investing activities 35,120 6,878
---------------------------------
Financing activities:
Principal repayments under note payable (21,000 ) (28,000 )
Proceeds from note payable -- 23,000
Decrease in restricted cash 85 1,434
Cash distributions paid to Limited Partners (6,686 ) (10,067 )
Cash distributions paid to General Partner (67 ) (102 )
Special distributions paid to Limited Partners (10,140 ) --
Special distributions paid to General Partner (102 ) --
Repurchases of Depositary Units (163 ) (334 )
---------------------------------
Net cash used in financing activities (38,073 ) (14,069 )
---------------------------------
Net increase in cash and cash equivalents 1,949 1,009
Cash and cash equivalents at beginning of period 1,474 2,542
---------------------------------
Cash and cash equivalents at end of period $ 3,423 $ 3,551
=================================
Supplemental information:
Interest paid $ 922 $ 1,703
=================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
1. Opinion of Management
In the opinion of the management of PLM Financial Services, Inc., the
General Partner, the accompanying unaudited financial statements contain
all adjustments necessary, consisting primarily of normal recurring
accruals, to present fairly the financial position of PLM Equipment Growth
Fund (the Partnership) as of September 30, 1996, the statements of income
for the three and nine months ended September 30, 1996 and 1995, the
statements of changes in Partners' capital for the period from December 31,
1994 through September 30, 1996, and the statements of cash flows for the
nine months ended September 30, 1996 and 1995. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted from the accompanying 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, 1995, on file at the Securities and
Exchange Commission.
2. Investments in Unconsolidated Special Purpose Entities
Prior to 1996, the Partnership accounted for operating activities
associated with joint ownership of transportation equipment as undivided
interests, including its proportionate share of each asset with similar
wholly-owned assets in its financial statements. Under generally accepted
accounting principles, the effects of such activities, if material, should
be reported using the equity method of accounting. Therefore, effective
January 1, 1996, the Partnership adopted the equity method to account for
its investment in such jointly-held assets.
The principal differences between the previous accounting method and the
equity method relate to the presentation of activities relating to these
assets in the statement of operations. Under the equity method the
Partnership's proportionate share is presented as a single net amount,
"Equity in net income (loss) of unconsolidated special purpose entities".
Under the previous method, the Partnership's income statement reflected its
proportionate share of each individual item of revenue and expense.
Accordingly, the effect of adopting the equity method of accounting has no
cumulative effect on previously reported partners' capital or on the
Partnership's net income (loss) for the period of adoption. Because the
effects on previously issued financial statements of applying the equity
method of accounting for investments in jointly-owned assets are not
considered to be material to such financial statements taken as a whole,
previously issued financial statements have not been restated. However,
certain items have been reclassified in the previously issued balance sheet
to conform to the current period presentation.
The net investments in unconsolidated special purpose entities include the
following jointly-owned equipment (and related assets and liabilities) (in
thousands):
<TABLE>
<CAPTION>
September 30, December 31,
% Ownership Equipment 1996 1995
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
50% Product Tanker $ 2,238 $ 2,615
50% Aircraft engine -- 731
50% Boeing 737-200 1,879 2,368
50% Fairchild Metro III -- 170
55% Mobile Offshore drilling unit -- 7,295
70% Fairchild Metro III -- 358
12% Boeing 767-200 2,911 3,334
---------------------------------
Net investments $ 7,028 $ 16,871
=================================
</TABLE>
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
2. Investments in Unconsolidated Special Purpose Entities (continued)
During the nine months ended September 30, 1996, the Partnership sold its
70% and 50% investments in commuter aircraft, its 55% investment in a
mobile offshore drilling unit and its 50% investment in an aircraft engine
with an aggregate net book value of $8.3 million, for aggregate proceeds of
$17.5 million. During the nine months ended September 30, 1995, the
Partnership sold its 50% investments in a marine vessel, a commuter
aircraft and a commercial aircraft with an aggregate net book value of $4.3
million, for aggregate proceeds of $4.9 million. Included in the gain on
sale of the marine vessel in 1995 is the unused portion of accrued
drydocking of $0.3 million.
The Partnership's 50% investment in a commercial aircraft included in
"Investments in unconsolidated special purpose entities" was off lease at
September 30, 1996.
3. Distributions
Distributions are recorded when paid. Operating cash distributions were
$6.8 million and $10.2 million for the nine months ended September 30, 1996
and 1995, respectively. In addition, $10.2 million in special distributions
were paid to the partners during the nine months ended September 30, 1996,
from the sales proceeds of seven offshore supply vessels, 33 railcars, an
aircraft engine, 290 marine containers, 48 trailers, 50% investments in a
commuter aircraft and an aircraft engine, a 55% investment in a mobile
offshore drilling unit and a 70% investment in a commuter aircraft with
aggregate net book values of $12.8 million for proceeds of $35.2. There
were no special distributions paid to partners during the nine months ended
September 30, 1995. Cash distributions to Unitholders in excess of net
income are considered to represent a return of capital. During the nine
months ended September 30, 1995, cash distributions to Unitholders of $5.8
million were deemed to be a return of capital.
4. Delisting of Partnership Units and Depositary Unit Repurchase Plan
The Partnership had engaged in a program to repurchase up to 250,000
Depositary Units. During the nine months ended September 30, 1996, the
Partnership had repurchased 24,800 Depositary Units at a cost of $163,000.
As of September 30, 1996, the Partnership had repurchased a total of
199,650 Depositary Units at a cost of $2.6 million.
The General Partner delisted the Partnership's Depositary units from the
American Stock Exchange (AMEX) on April 8, 1996. The last day for trading
on the AMEX was March 22, 1996. Under the Internal Revenue Code (the Code)
the Partnership was classified as a Publicly Traded Partnership. The Code
treats all Publicly Traded Partnerships as corporations if they are
publicly traded after December 31, 1997. Treating the Partnership as a
corporation would mean the Partnership itself would have become a taxable,
rather than a "flow through" entity. As a taxable entity, the income of the
Partnership would have become subject to federal taxation at both the
partnership level and at the investor level to the extent that income would
have been distributed to an investor. In addition, the General Partner
believed that the trading price of the Depositary Units would have become
distorted when the Partnership began the final liquidation of the
underlying equipment portfolio. In order to avoid taxation of the
Partnership as a corporation and to prevent unfairness to Unitholders, the
General Partner delisted the Partnership's Depositary Units from the AMEX.
While the Partnership's Depositary Units are no longer publicly traded on a
national stock exchange, the General Partner continues to manage the
equipment of the Partnership and prepare and distribute
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
4. Delisting of Partnership Units and Depositary Unit Repurchase Plan
(continued)
quarterly and annual reports and Forms 10-Q and 10-K in accordance with the
Securities and Exchange Commission requirements. In addition, the General
Partner continues to provide pertinent tax reporting forms and information
to Unitholders. The General Partner anticipates an informal market for the
Partnership's units may develop in the secondary marketplace similar to
that which currently exists for non-publicly traded partnerships.
5. Equipment
Owned equipment held for operating leases is stated at cost. Equipment held
for sale is stated at the lower of the equipment's depreciated cost or fair
value less costs to sell and is subject to a pending contract for sale.
The components of owned equipment are as follows (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
--------------------------------
<S> <C> <C>
Rail equipment $ 21,966 $ 24,339
Marine containers 7,834 8,728
Aircraft and aircraft engines 6,299 8,992
Trailers 9,774 10,703
--------------------------------
45,873 52,762
Less accumulated depreciation (33,914 ) (36,198 )
--------------------------------
11,959 16,564
Equipment held for sale -- 2,298
--------------------------------
================================
Net equipment $ 11,959 $ 18,862
================================
</TABLE>
At December 31, 1995, equipment held for sale included seven offshore
supply vessels with a net book value of $2.3 million, which were sold in
January 1996, for $13.4 million.
Revenues are earned by placing the equipment under operating leases which
are generally billed monthly or quarterly. Some of the Partnership's marine
containers are leased to operators of utilization-type leasing pools which
include equipment owned by unaffiliated parties. In such instances,
revenues received by the Partnership consist of a specified percentage of
revenues generated by leasing the equipment to sublessees, after deducting
certain direct operating expenses of the pooled equipment. Rents for
railcars are based on mileage traveled or a fixed rate; rents for all other
equipment are based on fixed rates.
As of September 30, 1996, all equipment in the Partnership's portfolio was
on lease or operating in PLM-affiliated short-term trailer rental
facilities except for 33 marine containers and 10 railcars with net book
values of $30,000 and $84,000, respectively.
In the third quarter of 1994, the Partnership ended its reinvestment phase
in accordance with the Limited Partnership Agreement; therefore, no
equipment was purchased during the nine months ended September 30, 1996 and
1995. Capital improvements to the Partnership's equipment, totaling $59,000
and $43,000 were made during the nine months ended September 30, 1996 and
1995, respectively.
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
5. Equipment (continued)
During the nine months ended September 30, 1996, the Partnership sold or
disposed of 7 offshore supply vessels, 290 marine containers, 48 trailers,
1 aircraft engine, and 33 railcars with an aggregate net book value of $4.5
million for proceeds of $17.7 million. During the nine months ended
September 30, 1995, the Partnership sold or disposed of 306 marine
containers, 39 trailers, and 18 railcars with an aggregate net book value
of $0.9 million for aggregate proceeds of $2.0 million.
6. Debt
On September 30, 1996, the Partnership made a $12.0 million debt payment on
its adjustable rate senior secured note, with equipment sales proceeds, to
reduce the outstanding debt obligation to $2.0 million.
7. Subsequent Event
Cash distributions of $1.6 million ($0.27 per Depositary Unit) were
declared on October 24, 1996, and are to be paid on November 15, 1996, to
the Unitholders of record as of September 30, 1996.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(I) RESULTS OF OPERATIONS
Comparison of the Partnership's Operating Results for the Three Months Ended
September 30, 1996 and 1995
(A) Owned equipment operations
Lease revenues less direct expenses (defined as repairs and maintenance, marine
equipment operating, and asset specific insurance expenses) on owned equipment
decreased during the third quarter of 1996 when compared to the same quarter of
1995. The following table presents lease revenues less direct expenses by owned
equipment type (in thousands):
<TABLE>
<CAPTION>
For the three months
ended September 30,
1996 1995
----------------------------
<S> <C> <C>
Aircraft and aircraft engine $ 122 $ 117
Trailers 295 385
Rail equipment 1,095 1,108
Marine containers 195 416
Marine vessels -- 635
</TABLE>
Aircraft: Aircraft lease revenues and direct expenses were $0.1 million and
$2,000, respectively, for the three months ended September 30, 1996, compared to
$0.1 million and $3,000, respectively, during the same quarter of 1995. The
Partnership's aircraft engine which was sold in the second quarter of 1996 was
off lease the entire third quarter of 1995, thus did not have an impact on the
net contribution in either period. The Partnership's remaining commercial
aircraft's net contribution was $0.1 million in both the third quarters of 1995
and 1996;
Trailers: Trailer lease revenues and direct expenses were $0.4 million and $0.1
million, respectively, for the three months ended 1996, compared to $0.5 million
and $0.1 million, respectively, during the same quarter of 1995. Trailer net
contribution decreased due to the sale of 45 trailers during 1995, and 48
trailers during 1996. In addition, the trailer fleet is experiencing lower
utilization in the PLM affiliated short-term rental yards;
Rail equipment: Rail equipment lease revenues and direct expenses were $1.5
million and $0.4 million, respectively, for the three months ended 1996,
compared to $1.7 million and $0.6 million, respectively, during the same quarter
of 1995. During the nine months ended September 30, 1996, the Partnership sold
20 locomotives, resulting in lower revenues but also lower expenses for the
three months ended September 30, 1996, compared to the same quarter of 1995;
Marine containers: Marine container lease revenues and direct expenses were $0.2
million and $2,000, respectively, for the three months ended 1996, compared to
$0.4 million and $4,000, respectively, during the same quarter of 1995. The
number of marine containers owned by the Partnership has been declining over the
past twelve months due to sales and dispositions. The result of this declining
fleet has been a decrease in marine container net contribution;
Marine vessels: There were no marine vessel lease revenues or direct expenses
during the third quarter ended September 30, 1996. Marine vessel lease revenues
and direct expenses were $0.4 million and ($0.2) million for the three months
ended September 30, 1995. The decrease was due to the sale of seven offshore
supply vessels during the first quarter of 1996, which were on lease for the
entire third quarter of 1995.
(B) Indirect expenses related to owned equipment operations
Total indirect expenses of $1.4 million for the quarter ended September 30,
1996, decreased from $2.3 million for the same period in 1995. The variances are
explained as follows:
(a) A $0.5 million decrease in depreciation and amortization expenses from 1995
levels reflecting the sale of certain assets during 1996 and 1995;
(b) A $0.3 million decrease in interest expense due to reductions in the
Partnership's outstanding debt;
(c) A $0.1 million decrease in general and administrative expenses due to a
decrease in the provision for bad debts.
(C) Net gain on disposition of owned equipment
Net gain on disposition of equipment for the third quarter of 1996 totaled $0.3
million which resulted mainly from the sale or disposition of 3 railcars, 21
trailers, and 124 marine containers with an aggregate net book value of $0.1
million, for aggregate proceeds of $0.4 million. For the third quarter of 1995,
the $0.3 million net gain on disposition of equipment resulted from the sale or
disposal of 59 marine containers, 4 trailers and 3 railcars with an aggregate
net book value of $0.1 million, for aggregate proceeds of $0.4 million.
(D) Interest and other income
Interest and other income decreased $0.3 million during the third quarter of
1996 due to adjustments recorded in the third quarter of 1995 which represented
$0.3 million of accrued interest income on deposit balances no longer payable.
There were no similar adjustments recorded in the third quarter of 1996.
(E) Equity in net income of unconsolidated special purpose entities represents
net income generated from the operation of jointly-owned assets accounted for
under the equity method (see Note 2 to the financial statements).
<TABLE>
<CAPTION>
For the three months
ended September 30,
1996 1995
----------------------------
<S> <C> <C>
Aircraft and aircraft engines $ 821 $ 41
Marine vessels 152 (85 )
Mobile offshore drilling unit 8,043 (64 )
</TABLE>
Aircraft and aircraft engines: The Partnership's share of aircraft revenues and
expenses were $1.1 million and $0.3 million, respectively, for the three months
ended September 30, 1996, compared to $0.5 million and $0.5 million,
respectively, during the same quarter of 1995. As of September 30, 1996, the
Partnership owned 50% and 12% investments in commercial aircraft. The
Partnership sold its 50% investments in an aircraft engine and a commuter
aircraft during the third quarter of 1996, resulting in $0.9 million in net
gains, and $0.9 million of net income. Income from the sales was partially
offset by net loss of $0.1 million related to the Partnership's 50% investment
in a commercial aircraft and resulted from the aircraft being off lease during
the third quarter of 1996. The Partnership's remaining 12% investment in a
commercial aircraft operated at essentially break even during the third quarter
ended September 1996.
During the third quarter of 1995, the Partnership's aircraft joint investments
operated at essentially break even;
Marine vessel: The Partnership's share of marine vessel revenues and expenses
were $0.6 million and $0.4 million, respectively, for the three months ended
September 30, 1996, compared to $0.8 million and $0.9 million, respectively,
during the same quarter of 1995. During the third quarters ended September 1995
and 1996, the Partnership owned a 50% investment in a marine vessel that
experienced lower marine operating expenses as a percentage of revenue during
the third quarter ended 1996, compared to the prior year quarter, resulting in
higher net income compared to the similar prior year quarter.
Mobile offshore drilling unit: The Partnership's share of mobile offshore
drilling unit (rig) revenues and expenses were $8.1 million and $22,000,
respectively, for the three months ended September 30, 1996, compared to $0.4
million and $0.5 million, respectively, during the same quarter of 1995. Net
<PAGE>
income generated from the rig increased in the third quarter of 1996 due to the
$8.0 million gain on the sale of the Partnership's 55% investment in the rig in
July 1996.
(F) Net Income
As a result of the foregoing, the Partnership's net income of $9.7 million for
the third quarter of 1996, increased from net income of $0.9 million during the
same quarter in 1995. The Partnership's ability to operate and liquidate assets,
secure leases, and re-lease those assets whose leases expire during the duration
of the Partnership is subject to many factors and the Partnership's performance
in the third quarter of 1996 is not necessarily indicative of future periods.
During the third quarter of 1996, the Partnership distributed $7.5 million to
the Unitholders, or $1.29 per Depositary Unit, which included a special
distribution of $5.8 million, or $1.00 per depositary unit.
Comparison of the Partnership's Operating Results for the Nine Months Ended
September 30, 1996 and 1995
(A) Owned equipment operations
Lease revenues less direct expenses (defined as repairs and maintenance, marine
equipment operating, and asset specific insurance expenses) on owned equipment
decreased during the nine months ended September 30, 1996 when compared to the
same period of 1995. The following table presents lease revenues less direct
expenses by owned equipment type (in thousands):
<TABLE>
<CAPTION>
For the nine months
ended September 30,
1996 1995
----------------------------
<S> <C> <C>
Aircraft and aircraft engines $ 352 $ 308
Trailers 962 1,441
Rail equipment 3,666 3,855
Marine containers 882 1,245
Marine vessels 143 1,464
</TABLE>
Aircraft: Aircraft lease revenues and direct expenses were $0.4 million and
$17,000, respectively, for the nine months ended 1996, compared to $0.4 million
and $0.1 million, respectively, during the same period of 1995. The owned
aircraft fleet decreased due to the sale of one aircraft engine during 1996.
Aircraft contribution increased for the nine months ended September 1996 due to
lower insurance expenses for the period, compared to the same period of 1995;
Trailers: Trailer lease revenues and direct expenses were $1.4 million and $0.4
million, respectively, for the nine months ended 1996, compared to $1.8 million
and $0.4 million, respectively, during the same period of 1995. The trailer net
contribution decreased due to the sale of 45 trailers during 1995, and 48
trailers during 1996. In addition, the trailer fleet is experiencing lower
utilization in the PLM affiliated short-term rental yards;
Rail equipment: Rail equipment lease revenues and direct expenses were $4.9
million and $1.2 million, respectively, for the nine months ended 1996, compared
to $5.1 million and $1.2 million, respectively, during the same period of 1995.
During the nine months ended September 30, 1996, the Partnership sold 20
locomotives resulting in lower revenues and expenses for the nine months ended
September 30, 1996, compared to the same period of 1995. In addition, the
decrease in railcar contribution resulted from running repairs required on
certain of the railcars in the fleet during 1996 which were not needed during
1995;
Marine containers: Marine container lease revenues and direct expenses were $0.9
million and $6,000, respectively, for the nine months ended 1996, compared to
$1.2 million and $13,000, respectively, during the same period of 1995. The
number of marine containers owned by the Partnership has been declining over the
past twelve months due to sales and dispositions. The result of this declining
fleet has resulted in a decrease in marine container net contribution;
<PAGE>
Marine vessels: Marine vessel lease revenues and direct expenses were $0.1
million and $(4,000), respectively, for the nine months ended 1996, compared to
$1.3 million and ($0.2) million, respectively, during the same period of 1995.
The decrease was due to the sale of seven offshore supply vessels during the
first quarter of 1996, which were on-lease for the entire comparable period in
1995.
(B) Indirect expenses related to owned equipment operations
Total indirect expenses of $5.1 million for the nine months ended September 30,
1996, decreased from $6.9 million for the same period in 1995. The variances are
explained as follows:
(a) A $0.9 million decrease in depreciation and amortization expenses from 1995
levels reflecting the sale of certain assets during 1996 and 1995;
(b) A $0.7 million decrease in interest expense due to reductions in the
Partnership's outstanding debt;
(c) A $0.2 million decrease in general and administrative expenses due to a
decrease in the provision for bad debts.
(C) Net gain on disposition of owned equipment
Net gain on disposition of equipment for the nine months ended September 30,
1996 totaled $13.2 million which resulted mainly from the sale of seven offshore
supply vessels with a net book value of $2.3 million, for proceeds of $13.4
million. The remaining gain resulted from the sale or disposal of 290 marine
containers, 48 trailers, 1 aircraft engine, and 33 railcars, with an aggregate
net book value of $2.2 million for aggregate proceeds of $4.3 million. For the
nine months ended September 30, 1995, the $1.1 million net gain on disposition
of equipment resulted from the sale or disposal of 306 marine containers, 39
trailers, and 18 railcars with an aggregate net book value of $0.9 million, for
aggregate proceeds of $2.0 million.
(D) Interest and other income
Interest and other income decreased $0.4 million during the nine months ended
September 30, 1996 due to lower cash balances and adjustments recorded during
the nine months ended September 1995 which represented $0.3 million of accrued
interest income on deposit balances no longer payable. There were no similar
adjustments recorded during the nine months ended September 1996.
(E) Equity in net income of unconsolidated special purpose entities represents
net income generated from the operation of jointly-owned assets accounted for
under the equity method (see Note 2 to the financial statements).
<TABLE>
<CAPTION>
For the nine months
ended September 30,
1996 1995
----------------------------
<S> <C> <C>
Aircraft and aircraft engines $ 779 $ 447
Marine vessels 35 698
Mobile offshore drilling unit 8,052 1
</TABLE>
Aircraft and aircraft engines: The Partnership's share of aircraft revenues and
expenses were $2.3 million and $1.5 million, respectively, for the nine months
ended September 30, 1996, compared to $2.0 million and $1.6 million,
respectively, during the same period of 1995. As of September 30, 1996, the
Partnership owned 50% and 12% investments in commercial aircraft. The
Partnership sold its 70% and 50% investments in commuter aircraft, and its 50%
investment in an aircraft engine during the nine months ended September 30,
1996, resulting in $1.3 million in net gains, and $1.2 million of net income.
Income from the sales was partially offset by net loss during the nine months
ended September 30, 1996 of $0.4 million related to the Partnership's 50%
investment in a commercial aircraft and resulted from an increase in the
allowance for doubtful accounts related to a financially troubled lessee, and
the aircraft being off lease during the third quarter of 1996. The Partnership's
remaining 12% investment in a commercial aircraft operated at essentially break
even during the nine months ended September 1996.
During the nine months ended September 30, 1995, the Partnership sold its 50%
investments in a commuter and a commercial aircraft, resulting in aggregate
gains of $0.4 million and aggregate net income of $0.3 million. The
Partnership's remaining aircraft joint investments generated $0.1 million of net
income during the nine months September 30, 1995;
Marine vessel: The Partnership's share of marine vessel revenues and expenses
were $1.6 million and $1.6 million, respectively, for the nine months ended
September 30, 1996, compared to $3.9 million and $3.2 million, respectively,
during the same period of 1995. During 1995 and 1996, the Partnership owned a
50% investment in a marine vessel that experienced lower daily rates during the
nine months ended September 1996, compared to 1995.
In addition, the Partnership had a 50% investment in a marine vessel that was
sold during the second quarter of 1995 for a gain of $0.5 million. This vessel
generated $0.3 million of net income during the nine months ended September
1995. There was no similar net income during the nine months ended September 30,
1996.
Mobile offshore drilling unit: The Partnership's share of mobile offshore
drilling unit (rig) revenues and expenses were $8.8 million and $0.7 million,
respectively, for the nine months ended September 30, 1996, compared to $1.2
million and $1.2 million, respectively, during the same period of 1995. Net
income generated from the rig increased in the nine months ended September 30,
1996 due to the $8.0 million gain on the sale of the Partnership's rig during
July 1996.
(F) Net Income
As a result of the foregoing, the Partnership's net income of $23.1 million for
the nine months ended September 30, 1996, increased from net income of $4.4
million during the same period in 1995. The Partnership's ability to operate and
liquidate assets, secure leases, and re-lease those assets whose leases expire
during the duration of the Partnership is subject to many factors and the
Partnership's performance in the third quarter 1996 is not necessarily
indicative of future periods. During the nine months ended September 30, 1996,
the Partnership distributed $17.0 million to the Unitholders, or $2.90 per
Depositary Unit, which included special distributions of $10.2 million, or $1.75
per depositary unit.
(II) FINANCIAL CONDITION - CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
The General Partner purchased the Partnership's initial equipment portfolio with
capital raised from its initial equity offering and permanent debt financing. No
further capital contributions from original partners are permitted under the
terms of the Partnership's Limited Partnership Agreement, while the
Partnership's total outstanding indebtedness, currently $2.0 million, cannot be
increased. The Partnership relies on operating cash flow and proceeds from the
disposition of equipment to meet its operating obligations and to make cash
distributions to the Limited Partners.
For the nine months ended September 30, 1996, the General Partner generated
sufficient operating cash flows to meet its operating obligations and to make
distributions to the partners.
Pursuant to the Limited Partnership Agreement, the Partnership ceased
during the third quarter of 1994 to reinvest in additional equipment. Equipment
sales now result in partial liquidation of the Partnership's portfolio, with
proceeds being used for payment of debt and distributions to partners. The
General Partner will pursue a strategy of selectively re-leasing equipment to
achieve competitive returns, or selling equipment that is underperforming or
whose operation becomes prohibitively expensive in the period prior to the final
liquidation of the Partnership.
On September 30, 1996, the Partnership made a $12.0 million debt payment on
its adjustable rate senior secured note, with investment sales proceeds, to
reduce the outstanding debt obligation to $2.0 million. In the fourth quarter,
the Partnership intends to retire the remaining debt balance with proceeds from
the sales of equipment.
As of the first quarter of 1996, the cash distribution rate was reduced to
more closely reflect current and expected net cash flows from operations.
Continued weak market conditions in certain equipment sectors and equipment
sales have reduced overall lease revenues in the Partnership to the point where
reductions in distribution levels are now necessary. In addition, with the 1996
beginning of the liquidation of the Partnership's portfolio, the amount of net
cash flows from operations will become progressively smaller as assets are sold.
Although operating distribution levels will be reduced, significant asset sales
have and may continue to result in potential special distributions to
Unitholders.
<PAGE>
(III) DEPOSITARY UNITS
The General Partner delisted the Partnership's Depositary units from the
American Stock Exchange (AMEX) on April 8, 1996. The last day for trading on the
AMEX was March 22, 1996. The Partnership has engaged in a program to purchase up
to 250,000 Depositary Units. During the nine months ended September 30, 1996,
the Partnership repurchased 24,800 Depositary Units at a cost of $163,000. As of
September 30, 1996, the Partnership had repurchased a total of 199,650
Depositary Units at a cost of $2.6 million.
(IV) TRENDS
The Partnership continues to pursue a strategy of selectively re-leasing
equipment to achieve competitive returns, or selling equipment that is
underperforming or whose operation becomes prohibitively expensive. During 1996,
marine container and refrigerated over-the-road trailer markets, oversupply
conditions, industry consolidation, and other factors are expected to result in
falling rates and lower returns. In the dry over-the-road trailer markets,
strong demand and back log of new equipment deliveries is expected to produce
high utilization and returns. The marine vessel and railcar markets may produce
increased rates as demand for equipment is increasing faster than new additions,
net of retirements. These different markets are expected to have individual
affects on the Partnership's ability to re-lease and achieve competitive returns
and to sell equipment.
With the 1996 beginning of the liquidation of the Partnership's portfolio,
the General Partner may choose to sell equipment rather than re-lease if market
conditions are optimal. As the Partnership sells equipment, the size of the
remaining equipment portfolio will become smaller, and in turn, the net cash
flows from operations, and therefore, distributions levels will be reduced. Cash
flows from operations will be used to pay loan principal on debt and pay
operating distributions to unitholders. Significant asset sales may continue to
result in potential special distributions to Unitholders.
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLM EQUIPMENT GROWTH FUND
By: PLM Financial Services, Inc.
General Partner
Date: November 12, 1996 By: /s/ David J. Davis
------------------
David J. Davis
Vice President and
Corporate Controller
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,423
<SECURITIES> 0
<RECEIVABLES> 1,030
<ALLOWANCES> (75)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 45,873
<DEPRECIATION> (33,914)
<TOTAL-ASSETS> 23,593
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 20,313
<TOTAL-LIABILITY-AND-EQUITY> 23,593
<SALES> 0
<TOTAL-REVENUES> 21,061
<CGS> 0
<TOTAL-COSTS> 5,881
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 909
<INCOME-PRETAX> 23,137
<INCOME-TAX> 0
<INCOME-CONTINUING> 23,137
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,137
<EPS-PRIMARY> 3.96
<EPS-DILUTED> 3.96
</TABLE>
