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, 1998
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 of dollars, except unit amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-----------------------------------------
<S> <C> <C>
Assets
Equipment held for operating lease, at cost $ 27,308 $ 33,019
Less accumulated depreciation (21,377) (24,885)
-----------------------------------------
Net equipment 5,931 8,134
Cash and cash equivalents 3,959 4,585
Accounts receivable, net of allowance for doubtful accounts
of $54 in 1998 and $212 in 1997 564 920
Due from affiliate -- 353
Investments in unconsolidated special-purpose entities 4,289 5,983
Prepaid expenses and other assets -- 31
-----------------------------------------
Total assets $ 14,743 $ 20,006
=========================================
Liabilities and partners' capital
Liabilities:
Accounts payable and accrued expenses $ 216 $ 735
Due to affiliates 528 529
Lessee deposits and reserve for repairs 33 44
Total liabilities 777 1,308
Partners' capital (deficit):
Limited partners (5,785,350 depositary units
as of September 30, 1998 and December 31, 1997) 14,135 18,887
General Partner (169) (189)
Total partners' capital 13,966 18,698
Total liabilities and partners' capital $ 14,743 $ 20,006
=========================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
STATEMENTS OF INCOME
(in thousands of dollars, except weighted-average unit amounts)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Lease revenue $ 1,833 $ 2,385 $ 5,641 $ 6,818
Interest and other income 39 38 129 127
Net gain on disposition of equipment 464 1,863 684 2,188
------------------------------------------------------------------
Total revenues 2,336 4,286 6,454 9,133
------------------------------------------------------------------
Expenses
Depreciation 433 561 1,405 1,741
Management fees to affiliate 114 96 388 360
Repairs and maintenance 520 597 1,724 1,469
Insurance expense to affiliate -- -- (38 ) --
Other insurance expense 10 13 31 41
General and administrative expenses to affiliates 112 162 402 434
Other general and administrative expenses 75 128 473 388
Provision for (recovery of) bad debt expense 6 296 (103 ) 471
------------------------------------------------------------------
Total expenses 1,270 1,853 4,282 4,904
------------------------------------------------------------------
Equity in net income (loss) of unconsolidated
special-purpose entities 112 178 247 (665)
------------------------------------------------------------------
Net income $ 1,178 $ 2,611 $ 2,419 $ 3,564
==================================================================
Partners' share of net income (loss)
Limited partners $ 1,181 $ 2,595 $ 2,328 $ 3,516
General Partner (3) 16 91 48
------------------------------------------------------------------
Total $ 1,178 $ 2,611 $ 2,419 $ 3,564
==================================================================
Net income per weighted-average depositary unit $ 0.20 $ 0.45 $ 0.40 $ 0.61
===============================================================================================
Cash distributions $ 1,030 $ 1,601 $ 3,668 $ 4,804
Special distributions -- -- 3,483 --
-----------------------------------------------------------------------------------------------
Total distributions $ 1,030 $ 1,601 $ 7,151 $ 4,804
===============================================================================================
Per weighted-average depositary unit:
Cash distributions $ 0.18 $ 0.27 $ 0.62 $ 0.82
Special distributions -- -- 0.60 --
-----------------------------------------------------------------------------------------------
Total distributions $ 0.18 $ 0.27 $ 1.22 $ 0.82
===============================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
From the Period From December 31, 1996 to September 30,
1998
(in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
------------------------------------------------------
<S> <C> <C> <C>
Partners' capital (deficit) as of December 31, 1996 $ 19,641 $ (223) $ 19,418
Net income 5,587 98 5,685
Cash distributions (6,341) (64) (6,405)
Partners' capital (deficit) as of December 31, 1997 18,887 (189) 18,698
Net income 2,328 91 2,419
Cash distributions (3,632) (36) (3,668)
Special distributions (3,448) (35) (3,483)
-------------------------------------------------------------
Partners' capital (deficit) as of September 30, 1998 $ 14,135 $ (169) $ 13,966
=============================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1998 1997
---------------------------------
<S> <C> <C>
Operating activities
Net income $ 2,419 $ 3,564
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 1,405 1,741
Net gain on disposition of equipment (684) (2,188)
Equity in net (income) loss from unconsolidated
special-purpose entities (247) 665
Changes in operating assets and liabilities:
Accounts receivable, net 381 (301 )
Due from affiliate 353 --
Prepaid expenses and other assets 31 32
Accounts payable and accrued expenses (519) 277
Due to affiliates (1) 354
Lessee deposits and reserve for repairs (11) (590 )
-------------------------------------
Net cash provided by operating activities 3,127 3,554
-------------------------------------
Investing activities
Payments for capital improvements (108) (58 )
Liquidation distributions from unconsolidated
special-purpose entity 1,103 --
Distributions from unconsolidated special-purpose entities 838 863
Proceeds from disposition of equipment 1,565 2,713
-------------------------------------
Net cash provided by investing activities 3,398 3,518
-------------------------------------
Financing activities
Cash distributions paid to limited partners (3,632) (4,756 )
Cash distributions paid to General Partner (36) (48 )
Special distributions paid to limited partners (3,448) --
Special distributions paid to General Partner (35) --
-------------------------------------
Net cash used in financing activities (7,151) (4,804 )
-------------------------------------
Net increase (decrease) in cash and cash equivalents (626) 2,268
Cash and cash equivalents at beginning of period 4,585 1,864
-------------------------------------
Cash and cash equivalents at end of period $ 3,959 $ 4,132
=====================================
Supplemental information
Sale proceeds in accounts receivable $ 28 $ 168
=====================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
1. Opinion of Management
In the opinion of the management of PLM Financial Services, Inc. (FSI or the
General Partner), the accompanying unaudited financial statements contain all
adjustments necessary, consisting primarily of normal recurring accruals, to
present fairly the PLM Equipment Growth Fund's (the Partnership's) financial
position as of September 30, 1998 and December 31, 1997, the statements of
income for the three and nine months ended September 30, 1998 and 1997, the
statements of changes in Partners' capital from December 31, 1996 to September
30, 1998, and the statements of cash flows for the nine months ended September
30, 1998 and 1997. Certain information and note 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, 1997, on file at the Securities and
Exchange Commission.
2. Cash Distributions
Distributions are recorded when paid. Operating cash distributions were $3.7
million and $4.8 million for the nine months ended September 30, 1998 and 1997,
respectively, and $1.0 million and $1.6 million for the three months ended
September 30, 1998 and 1997, respectively. In addition, a $3.5 million special
distribution was paid during the nine months ended September 30, 1998. No
special distributions were paid during the nine months ended September 30, 1997.
Cash distributions to the limited partners in excess of net income are
considered to represent a return of capital. During the nine months ended
September 30, 1998 and 1997, cash distributions to unitholders of $4.8 million
and $1.2 million, respectively, were deemed to be a return of capital. Cash
distributions of $1.0 million relating to the results from the third quarter of
1998 are to be paid during the fourth quarter of 1998.
3. Transactions with General Partner and Affiliates
The Partnership's proportional share of the affiliated expenses incurred by the
unconsolidated special-purpose entities (USPEs) during 1998 and 1997 is listed
in the following table (in thousands of dollars):
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees $ 37 $ 28 $ 103 $ 166
Insurance expense 20 32 13 131
Data processing and administrative
expenses 11 10 38 30
</TABLE>
The Partnership's proportional share of USPE-affiliated management fees of
$23,000 and $10,000 were payable as of September 30, 1998, and December 31,
1997, respectively.
Transportation Equipment Indemnity Company, Ltd. (TEI), an affiliate of the
General Partner, provides marine insurance coverage for the Partnership's
investment in USPEs and other insurance brokerage services.
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
4. Transactions with General Partner and Affiliates (continued)
The balance due to affiliates as of September 30, 1998 includes $0.1 million due
to FSI and its affiliate for management fees and $0.5 million due to affiliated
USPEs. The balance due to affiliates as of December 31, 1997 includes $0.1
million due to FSI and its affiliate for management fees and $0.4 million due to
affiliated USPEs.
5 Equipment
Owned equipment held for operating leases is stated at cost. The components of
owned equipment are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------------------------------
<S> <C> <C>
Railcar equipment $ 21,686 $ 21,948
Trailers 2,917 7,628
Marine containers 2,705 3,443
-----------------------------------------------------------------------------
27,308 33,019
Less accumulated depreciation (21,377) (24,885)
------------------------------------
Net equipment $ 5,931 $ 8,134
====================================
</TABLE>
As of September 30, 1998, all equipment in the Partnership's owned equipment
portfolio was on lease or operating in PLM-affiliated short-term trailer rental
facilities, except for 23 marine containers and 3 railcars with an aggregate net
book value of $16,000. As of December 31, 1997, all equipment in the
Partnership's owned equipment portfolio was on lease or operating in
PLM-affiliated short-term trailer rental facilities, except for 24 marine
containers and 3 railcars with an aggregate net book value of $20,000.
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, 1998 and 1997. Capital
improvements to the Partnership's equipment of $0.1 million were made during the
nine months ended September 30, 1998 and September 30, 1997.
During the nine months ended September 30, 1998, the Partnership sold or
disposed of marine containers, railcars, and trailers, with an aggregate net
book value of $0.9 million, for proceeds of $1.6 million. During the nine months
ended September 30, 1997, the Partnership sold or disposed of marine containers,
trailers, and an aircraft with an aggregate net book value of $0.7 million, for
proceeds of $2.9 million.
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
6. Investments in Unconsolidated Special-Purpose Entities
The net investments in unconsolidated special-purpose entities include the
following jointly-owned equipment (and related assets and liabilities) (in
thousands of dollars):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------------------------------------------
<S> <C> <C>
12% interest in an entity owning a Boeing 767-200 ER $ 2,048 $ 2,303
50% interest in an entity owning a product tanker 1,772 1,247
50% interest in an entity owning a Boeing 737-200 469 1,241
18% interest in an entity that owned a Boeing 727-200 0 1,192
Net investments $ 4,289 $ 5,983
============================================
</TABLE>
The Boeing 737-200 aircraft was off lease as of September 30, 1998 and December
31, 1997. During the first quarter of 1998, the General Partner sold the
aircraft in which the Partnership had an 18% interest for its approximate net
book value.
7. Net Income (Loss) Per Weighted-Average Partnership Unit
Net income (loss) per weighted-average Partnership unit was computed by dividing
net income (loss) attributable to limited partners by the weighted-average
number of Partnership units deemed outstanding during this period. The
weighted-average number of Partnership units deemed outstanding during the three
months and nine months ended September 30, 1998 and 1997 was 5,785,350.
(this space left blank intentionally)
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(I) RESULTS OF OPERATIONS
Comparison of PLM Equipment Growth Fund's (the Partnership's) Operating Results
for the Three Months Ended September 30, 1998 and 1997
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance and
asset-specific insurance expenses) on owned equipment decreased during the
quarter ended September 30, 1998, compared to the same period of 1997. The
following table presents lease revenues less direct expenses by owned equipment
type (in thousands of dollars):
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
1998 1997
---------------------------
<S> <C> <C>
Railcar equipment $ 1,035 $ 1,172
Trailers 220 302
Marine containers 55 271
Aircraft -- 35
</TABLE>
Rail equipment: Rail equipment lease revenues and direct expenses were $1.5
million and $0.5 million, respectively, for the quarter ended September 30,
1998, compared to $1.6 million and $0.4 million, respectively, for the same
period of 1997. Direct revenues decreased due to the sale of railcars during the
preceding twelve months. Direct expenses on railcars increased due to increased
repairs required on certain of the railcars in the fleet during 1998, which were
not needed during 1997.
Trailers: Trailer lease revenues and direct expenses were $0.3 million and $0.1
million, respectively, for the quarter ended September 30, 1998, compared to
$0.4 million and $0.1 million, respectively, for the same period of 1997. The
number of trailers 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 trailer contribution.
Marine containers: Marine container lease revenues and direct expenses were $0.1
million and $1,000, respectively, for the quarter ended September 30, 1998,
compared to $0.3 million and $1,000, respectively, for the same period of 1997.
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 contribution
Aircraft: The Partnership had zero revenues and direct expenses from aircraft
for the quarter ended September 30, 1998, compared to $36,000 and a $1,000,
respectively, for the same period of 1997. Aircraft contribution decreased in
the third quarter of 1998 due to the disposition of the last aircraft in the
Partnership in the third quarter of 1997.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $0.7 million for the quarter ended September 30, 1998
decreased from $1.2 million for the same period of 1997. The decrease is due
primarily to a $0.3 million decrease in bad debt expense recorded in 1997
related to a former aircraft lessee, a $0.1 million decrease in administrative
expenses resulting from the decrease in the equipment owned by the Partnership,
and a $0.1 million decrease in depreciation expense from 1997 levels resulting
from the sale of certain assets during 1998 and 1997.
<PAGE>
(C) Net Gain on Disposition of Owned Equipment
The net gain on disposition of owned equipment for the third quarter of 1998
totaled $0.5 million, and resulted from the sale of marine containers, railcars,
and trailers, with an aggregate net book value of $0.2 million, for aggregate
proceeds of $0.7 million. For the third quarter of 1997, gain on sales totaled
$1.9 million, and resulted from the sale of marine containers, trailers, and an
aircraft with an aggregate net book value of $0.2 million, for aggregate
proceeds of $2.1 million.
(D) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
1998 1997
------------------------------
<S> <C> <C>
Marine vessel $ 195 $ 169
Aircraft (83 ) 9
Equity in net income (loss) $ 112 $ 178
=================================================================
</TABLE>
Marine vessel: As of September 30, 1998 and 1997, the Partnership had an
interest in an entity that owns a marine vessel. The Partnership's share of
marine vessel revenues and expenses was $0.7 million and $0.5 million,
respectively, for the quarters ended September 30, 1998 and 1997. Marine vessel
contribution in the third quarter of 1998 was approximately the same in the
third quarter of 1998, compared to the same period of 1997.
Aircraft: As of September 30, 1998 and 1997, the Partnership had an interest in
two entities that own a total of two commercial aircraft. The Partnership's
share of aircraft revenues and expenses was $0.2 million and $0.2 million,
respectively, for the quarter ended September 30, 1998, compared to $0.3 million
and $0.3 million, respectively, for the same period of 1997. The Partnership's
50% interest in an entity that owns a commercial aircraft was off lease during
the third quarter of 1998 and 1997. Direct expenses in this entity decreased due
to decreased repairs on this aircraft. The Partnership's remaining 12% interest
in an entity that owns a commercial aircraft operated at essentially break-even
during the third quarter of 1998.
(E) Net Income
As a result of the foregoing, the Partnership's net income of $1.2 million for
the third quarter of 1998 decreased from net income of $2.6 million during the
same period of 1997. The Partnership's ability to operate and liquidate assets
and re-lease those assets whose leases expire is subject to many factors, and
the Partnership's performance in the third quarter of 1998 is not necessarily
indicative of future periods. In the third quarter of 1998, the Partnership
distributed $1.0 million to the limited partners, or $0.18 per weighted-average
depositary unit.
<PAGE>
Comparison of the Partnership's Operating Results for the Nine Months Ended
September 30, 1998 and 1997
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance and
asset-specific insurance expenses) on owned equipment decreased during the nine
months ended September 30, 1998, compared to the same period of 1997. The
following table presents lease revenues less direct expenses by owned equipment
type (in thousands of dollars):
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1998 1997
------------------------------
<S> <C> <C>
Rail equipment $ 3,021 $ 3,533
Trailers 725 879
Marine containers 157 659
Aircraft 0 250
</TABLE>
Rail equipment: Rail equipment lease revenues and direct expenses were $4.5
million and $1.5 million, respectively, for the nine months ended September 30,
1998, compared to $4.6 million and $1.1 million, respectively, during the same
period of 1997. The decrease in railcar contribution resulted from the sale of
railcars over the past twelve months and an increase in repairs required on
certain of the railcars in the fleet during 1998, which were not needed in 1997.
Trailers: Trailer lease revenues and direct expenses were $1.0 million and $0.3
million, respectively, for the nine months ended September 30, 1998, compared to
$1.3 million and $0.4 million, respectively, during the same period of 1997. The
number of trailers 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 trailer contribution.
Marine containers: Marine container lease revenues and direct expenses were $0.2
million and $3,000, respectively, for the nine months ended September 30, 1998,
compared to $0.7 million and $4,000, respectively, during the same period of
1997. 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 contribution.
Aircraft: The Partnership had zero revenues and direct expenses from aircraft
for the nine months ended September 30, 1998, compared to $0.3 million and
$5,000, respectively, during the same period of 1997. Aircraft contribution
decreased due to the disposition of the last aircraft in the Partnership, during
the third quarter of 1997.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $2.6 million for the nine months ended September 30,
1998 decreased from $3.4 million for the same period in 1997. Significant
variances are explained as follows:
(1) A $0.6 million decrease in bad debt expense due to a $0.2 million decrease
in reserve for a certain lessee resulting from the application of security
deposits against uncollected outstanding receivables in 1998, aircraft
receivables of $0.3 million recorded as bad debts in 1997 related to a former
lessee, and the collection of $0.1 million in outstanding receivables in 1998
from certain lessees that were previously reserved for as bad debts.
(2) A $0.3 million decrease in depreciation expenses from 1997 levels reflecting
the sale of certain assets during the preceding twelve months.
A $0.1 million increase in general and administrative expenes due to railcar
consulting expenses which were not required in 1997.
<PAGE>
(C) Net Gain on Disposition of Owned Equipment
Net gain on disposition of equipment for the nine months ended September 30,
1998 totaled $0.7 million, and resulted from the sale of marine containers,
railcars, and trailers with a net book value of $0.9 million, for proceeds of
$1.6 million. For the nine months ended September 30, 1997, the gain on sales
totaled $2.2 million, and resulted from the sale of marine containers, trailers,
and an aircraft, with a net book value of $0.7 million, for proceeds of $2.9
million.
(D) Equity in Net Income of Unconsolidated Special-Purpose Entities
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1998 1997
-------------------------------
<S> <C> <C>
Marine vessel $ 542 $ 354
Aircraft (295 ) (1,019)
Equity in net income (loss) $ 247 $ (665)
======================================================================
</TABLE>
Marine vessel: As of September 30, 1998 and 1997, the Partnership had an
interest in an entity that owns a marine vessel. The Partnership's share of
marine vessel revenues and expenses was $1.9 million and $1.4 million,
respectively, for the nine months ended September 30, 1998, compared to $1.9
million and $1.5 million, respectively, during the same period of 1997. Vessel
contribution increased in 1998 due to higher charter rates while vessel expenses
decreased due to a refund received during 1998 from Transportation Equipment
Indemnity Company, Ltd., an affiliate of the General Partner, related to lower
claims from the insured Partnership and other insured affiliated partnerships.
Aircraft: As of September 30, 1998 and 1997, the Partnership had an interest in
two entities that own a total of two commercial aircraft. The Partnership's
share of aircraft revenues and expenses was $0.4 million and $0.7 million,
respectively, for the nine months ended September 30, 1998, compared to $0.6
million and $1.6 million, respectively, during the same period of 1997. The
Partnership's 50% interest in an entity that owns a commercial aircraft was off
lease during the first nine months of 1998 and 1997. Direct expenses in this
entity decreased due to decreased repairs on this aircraft. The Partnership's
remaining 12% interest in an entity that owns a commercial aircraft operated at
essentially break-even during the first nine months of 1998.
(E) Net Income
As a result of the foregoing, the Partnership's net income of $2.4 million for
the nine months ended September 30, 1998 decreased from net income of $3.6
million during the same period in 1997. The Partnership's ability to operate and
liquidate assets and re-lease those assets whose leases expire is subject to
many factors, and the Partnership's performance in the first nine months of 1998
is not necessarily indicative of future periods. During the nine months ended
September 30, 1998, the Partnership distributed $7.2 million to the unitholders,
or $1.22 per weighted-average depositary unit, including a special distribution
of $0.60 per weighted-average depositary unit.
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
For the nine months ended September 30, 1998, the Partnership generated $3.9
million in operating cash (net cash provided by operating activities, plus
non-liquidating distributions from unconsolidated special-purpose entities) to
meet its operating obligations and maintain the current level of distributions
(total for nine months ended September 30, 1998 of approximately $7.2 million to
the partners, but used undistributed available cash from prior periods of
approximately $3.2 million.
During the nine months ended September 30, 1998, the General Partner sold
equipment on behalf of the Partnership and realized proceeds of approximately
$1.6 million. A special distribution of $3.5 million ($0.60 per weighted-average
depositary unit) was paid on February 13, 1998.
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
to that mentioned above.
Equipment sales have and will continue to reduce overall lease revenues in the
Partnership to the extent that further reductions in distribution levels may
become necessary. In addition, with the Partnership in active liquidation phase,
the size of the Partnership's remaining equipment portfolio and, in turn, the
amount of net cash flows from operations will continue to become progressively
smaller as assets are sold. Although distribution levels may be reduced,
significant asset sales may result in potential special distributions to the
partners.
The amounts reflected for assets and liabilities of the Partnership have not
been adjusted to reflect liquidation values. The equipment portfolio that is
actively being marketed for sale by the General Partner continues to be carried
at the lower of depreciated cost or fair value less cost of disposal. Although
the General Partner estimates that there will be distributions to the
Partnership after final disposal of assets and settlement of liabilities, the
amounts cannot be accurately determined prior to actual disposal of the
equipment.
(III) EFFECTS OF YEAR 2000
It is possible that the General Partner's currently installed computer systems,
software products and other business systems, or the Partnership's vendors,
service providers and customers, working either alone or in conjunction with
other software or systems, may not accept input of, store, manipulate and output
dates on or after January 1, 2000 without error or interruption (a problem
commonly known as the "Year 2000" problem). As the Partnership relies
substantially on the General Partner's software systems, applications and
control devices in operating and monitoring significant aspects of its business,
any Year 2000 problem suffered by the General Partner could have a material
adverse effect on the Partnership's business, financial condition and results of
operations.
The General Partner has established a special Year 2000 oversight committee to
review the impact of Year 2000 issues on its software products and other
business systems in order to determine whether such systems will retain
functionality after December 31, 1999. The General Partner (a) is currently
integrating Year 2000 compliant programming code into its existing internally
customized and internally developed transaction processing software systems and
(b) the General Partner's accounting and asset management software systems have
either already been made Year 2000 compliant or Year 2000 compliant upgrades of
such systems are planned to be implemented by the General Partner before the end
of fiscal 1999. Although the General Partner believes that its Year 2000
compliance program can be completed by the beginning of 1999, there can be no
assurance that the compliance program will be completed by that date. To date,
the costs incurred and allocated to the Partnership to become Year 2000
compliant have not been material. In addition, the General Partner believes the
future costs allocable to the Partnership to become Year 2000 compliant will not
be material.
Some risks associated with the Year 2000 problem are beyond the ability of the
Partnership to control, including the extent to which third parties can address
the Year 2000 problem. The General Partner has begun to communicate with
vendors, services providers and customers in order to assess the Year 2000
compliance readiness of such parties and the extent to which the Partnership is
vulnerable to any third-party Year 2000 issues. There can be no assurance that
the software systems of such parties will be converted or made Year 2000
compliant in a timely manner. Any failure by the General Partner or such other
parties to make their respective systems Year 2000 compliant could have a
material adverse effect on the business, financial position and results of
operations of the Partnership. The General Partner will make an ongoing effort
to recognize and evaluate potential exposure relating to third-party Year 2000
non-compliance and will develop a contingency plan if the General Partner
determines, or is unable to determine, that third-party non-compliance would
have a material adverse effect on the Partnership's business, financial position
or results of operation.
<PAGE>
(IV) ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued two new
statements: SFAS No. 130, "Reporting Comprehensive Income," which requires
enterprises to report, by major component and in total, all changes in equity
from nonowner sources; and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for a public company's operating segments and related
disclosures about its products, services, geographic areas, and major customers.
Both statements are effective for the Partnership's fiscal year ended December
31, 1998. The effect of adoption of these statements will be limited to the form
and content of the Partnership's disclosures and will not impact the
Partnership's results of operations, cash flow, or financial position.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an entity
recognize those items as assets or liabilities in the statement of financial
position and measure them at fair value. This statement is effective for all
quarters of fiscal years beginning after June 15, 1999. As of September 30,
1998, the General Partner is reviewing the effect this standard will have on the
Partnership's financial statements.
(V) OUTLOOK FOR THE FUTURE
Since the Partnership entered its orderly liquidation phase in the beginning in
1998, the General Partner has been seeking to selectively re-lease or sell
assets as the existing leases expire. Sale decisions will cause the operating
performance of the Partnership to decline over the remainder of its life.
Throughout the remaining life of the Partnership, the Partnership may
periodically make special distributions to the partners as asset sales are
completed.
Several factors may affect the Partnership's operating performance in 1998 and
beyond, including changes in the markets for the Partnership's equipment and
changes in the regulatory environment in which that equipment operates.
The Partnership's operation of a diversified equipment portfolio in a broad base
of markets is intended to reduce its exposure to volatility in individual
equipment sectors.
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 some 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 make an evaluation to reduce the Partnership's
exposure to equipment markets in which it determines that it cannot operate
equipment and achieve acceptable rates of return.
(VI) FORWARD-LOOKING INFORMATION
Except for historical information contained herein, the discussion in 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.
<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 5, 1998 By: /s/ Richard K Brock
------------------------------]
Richard K Brock
Vice President and
Corporate Controller
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
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<ALLOWANCES> 54
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<DEPRECIATION> (21,377)
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0
0
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