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 March 31, 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>
March 31, December 31,
1998 1997
---------------------------------
<S> <C> <C>
Assets
Equipment held for operating leases, at cost $ 31,506 $ 33,019
Less accumulated depreciation (24,080) (24,885)
-------------------------------------
Net equipment 7,426 8,134
Cash and cash equivalents 1,809 4,585
Accounts receivable, less allowance for doubtful accounts
of $63 as of March 31, 1998, and $212 as of December 31, 1997 783 920
Due from affiliate -- 353
Investments in unconsolidated special-purpose entities 5,004 5,983
Prepaid expenses and other assets 21 31
-------------------------------------
Total assets $ 15,043 $ 20,006
=====================================
Liabilities and partners' capital
Liabilities:
Accounts payable and accrued expenses $ 324 $ 735
Due to affiliates 459 529
Lessee deposits and reserve for repairs 103 44
-------------------------------------
Total liabilities 886 1,308
Partners' capital (deficit):
Limited partners (5,785,350 depositary units
as of March 31, 1998 and as of December 31, 1997) 14,340 18,887
General Partner (183) (189)
-------------------------------------
Total partners' capital 14,157 18,698
-------------------------------------
Total liabilities and partners' capital $ 15,043 $ 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 per weighted-average unit amounts)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1998 1997
----------------------------
<S> <C> <C>
Revenues
Lease revenue $ 1,969 $ 2,190
Interest and other income 67 59
Net gain on disposition of equipment 75 76
--------------------------------
Total revenues 2,111 2,325
Expenses
Depreciation and amortization 495 596
Management fees to affiliate 166 138
Repairs and maintenance 569 354
Insurance expense 10 14
General and administrative expenses to affiliate 144 155
Other general and administrative expenses 256 136
(Recovery of ) provision for bad debt (116 ) 153
--------------------------------
Total expenses 1,524 1,546
Equity in net loss of unconsolidated special-purpose entities (44 ) (26)
--------------------------------
Net income $ 543 $ 753
================================
Partners' share of net income
Limited partners $ 486 $ 745
General Partner 57 8
--------------------------------
Total $ 543 $ 753
================================
Net income per weighted-average depositary unit (5,785,350 units
as of March 31, 1998 and 1997) $ 0.08 $ 0.13
================================
Cash distribution $ 1,601 $ 1,601
Special distribution 3,483 --
Total distributions $ 5,084 $ 1,601
================================
Per weighted-average depositary unit:
Cash distribution $ 0.27 $ 0.27
Special distribution 0.60 --
--------------------------------
Total distributions $ 0.87 $ 0.27
================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
From the Period Ended December 31, 1996 to March 31, 1998
(in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
----------------------------------------------------------
<S> <C> <C> <C>
Partners' capital (deficit) at 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) at December 31, 1997 18,887 (189 ) 18,698
Net income 486 57 543
Cash distribution (1,585) (16 ) (1,601 )
Special distribution (3,448) (35 ) (3,483 )
----------------------------------------------------------
Partners' capital (deficit) at March 31, 1998 $ 14,340 $ (183 ) $ 14,157
==========================================================
</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 Three Months
Ended March 31,
1998 1997
---------------------------------
<S> <C> <C>
Operating activities
Net income $ 543 $ 753
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 495 596
Net gain on disposition of equipment (75) (76 )
Equity in net loss from unconsolidated
special-purpose entities 44 26
Changes in operating assets and liabilities:
Accounts receivable, net 189 59
Due from affiliates 353 --
Prepaid expenses and other assets 10 9
Accounts payable and accrued expenses (411) (154 )
Due to affiliates (70) (74 )
Lessee deposits and reserve for repairs 59 44
-------------------------------------
Net cash provided by operating activities 1,137 1,183
-------------------------------------
Investing activities
Payments for capital improvements (74) --
Proceeds from disposition of equipment 310 142
Liquidation distributions from unconsolidated
special-purpose entities 1,101 --
(Additional investments in) distributions from unconsolidated
special-purpose entities (166) 524
-------------------------------------
Net cash provided by investing activities 1,171 666
-------------------------------------
Financing activities
Cash distributions paid to limited partners (1,585) (1,585 )
Cash distributions paid to General Partner (16) (16 )
Special distributions paid to limited partners (3,448) --
Special distributions paid to General Partner (35) --
-------------------------------------
Net cash used in financing activities (5,084) (1,601 )
-------------------------------------
Net (decrease) increase in cash and cash equivalents (2,776) 248
Cash and cash equivalents at beginning of period 4,585 1,864
-------------------------------------
Cash and cash equivalents at end of period $ 1,809 $ 2,112
=====================================
Supplemental information
Sales proceeds in accounts receivable $ 55 $ --
=====================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
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 PLM Equipment Growth Fund's (the
Partnership's) financial position as of March 31, 1998 and December 31,
1997, the statements of income for the three months ended March 31, 1998
and 1997, the statements of changes in Partners' capital from the period
ended December 31, 1996 to March 31, 1998, and the statements of cash flows
for the three months ended March 31, 1998 and 1997. 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, 1997, on file at the Securities and
Exchange Commission.
2. Distributions
Distributions are recorded when paid. Operating cash distributions were
$1.6 million for the three months ended March 31, 1998 and 1997. In
addition, a $3.5 million special distribution was paid to the partners
during the three months ended March 31, 1998, from the proceeds realized on
the sale of equipment in 1998 and 1997. During the quarter ended March 31,
1998, cash distributions to unitholders of $4.5 million were deemed to be a
return of capital. No special distributions were paid during the three
months ended March 31, 1997.
Cash distributions of $1.6 million ($0.27 per weighted-average depositary
unit) were declared on April 24, 1998, and are to be paid on May 15, 1998,
to the unitholders of record as of March 31, 1998.
3. General Partner and Transactions with Affiliates
The balance due to affiliates as of March 31, 1998, included $10,000 due to
FSI and its affiliates for management fees and $0.4 million due to
affiliated unconsolidated special purpose entities (USPEs). The balance due
to affiliates as of December 31, 1997, included $0.1 million due to FSI and
its affiliates for management fees and $0.4 million due to affiliated
USPEs. The Partnership's proportional share of USPE affiliated management
fees, of $39,000 and $10,000, were payable as of March 31, 1998 and
December 31, 1997, respectively.
The Partnership's proportional share of the affiliated expenses incurred by
the USPEs during 1998 and 1997 is listed in the following table (in
thousands of dollars):
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1998 1997
--------------------------------
<S> <C> <C>
Management fees $ 48 $ 108
Insurance expense 17 61
Data processing and administrative
expenses 14 8
</TABLE>
Transportation Equipment Indemnity Company, Ltd. (TEI) provides marine
insurance coverage for Partnership equipment and other insurance brokerage
services. TEI is an affiliate of the General Partner.
4. 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>
March 31, December 31,
1998 1997
-------------------------------------
<S> <C> <C>
Railcar equipment $ 21,997 $ 21,948
Trailers 6,248 7,628
Marine containers 3,261 3,443
31,506 33,019
Less accumulated depreciation (24,080) (24,885)
-------------------------------------
Net equipment $ 7,426 $ 8,134
=====================================
</TABLE>
Revenues are earned by placing the equipment under operating leases that
are generally billed monthly or quarterly. All 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 March 31, 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 24 marine containers, 8 railcars, and one
aircraft with carrying values of $47,000.
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 quarters ended March 31, 1998 and 1997.
Capital improvements to the Partnership's railcar fleet of $0.1 million
were made during the quarter ended March 31, 1998.
During the three months ended March 31, 1998, the Partnership sold or
disposed of marine containers, trailers and railcars with an aggregate net
book value of $0.3 million for proceeds of $0.4 million. During the three
months ended March 31, 1997, the Partnership sold or disposed of marine
containers and trailers with an aggregate net book value of $0.1 million
for proceeds of $0.1 million.
5. Investments in Unconsolidated Special-Purpose Entities
The net investments in USPE's include the following jointly-owned equipment
(and related assets and liabilities) (in thousands of dollars):
<TABLE>
<CAPTION>
March 31, December 31,
% Ownership Equipment 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
12% Boeing 767-200 $ 2,198 $ 2,303
50% Product Tanker 1,533 1,247
50% Boeing 737-200 1,198 1,241
18% Boeing 727-200 75 1,192
Net investments $ 5,004 $ 5,983
=====================================
</TABLE>
The Boeing 737-200 aircraft in which the Partnership has a 50% investment
was off-lease at March 31, 1998 and 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.
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
March 31, 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 March 31, 1998 when 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 March 31,
1998 1997
-------------------------------
<S> <C> <C>
Railcar equipment $ 1,046 $ 1,237
Trailers 268 300
Marine containers 80 182
Aircraft -- 108
</TABLE>
Rail equipment: Rail equipment lease revenues and direct expenses were $1.5
million and $0.5 million, respectively, for the quarter ended March 31, 1998,
compared to $1.5 million and $0.3 million, respectively, for the same period of
1997. Expenses 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 $0.4 million and $0.1
million, respectively, for the quarter ended March 31, 1998, compared to $0.4
million and $0.1 million, respectively, for the same period of 1997. The trailer
contribution decreased due to the sale of trailers during 1998 and 1997.
Marine containers: Marine container lease revenues and direct expenses were $0.1
million and $1,000, respectively, for the quarter ended March 31, 1998, compared
to $0.2 million and $2,000, 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.
Aircraft: The Partnership had zero revenues and direct expenses from aircraft
for the quarter ended March 31, 1998, compared to $0.1 million and $2,000,
respectively, for the same period of 1997. Aircraft contribution decreased due
to the off-lease status of the aircraft held for sale in the first quarter of
1998 . This aircraft was also held for sale at December 31, 1997.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $0.9 million for the quarter ended March 31, 1998,
decreased from $1.2 million for the same period of 1997. Significant variances
are explained as follows:
(1) A $0.3 million decrease in bad debt expense primarily reflecting the
Partnership's recovery of certain receivable balances previously reserved for as
bad debt.
(2) A $0.1 million decrease in depreciation and amortization expenses from 1997
levels reflecting the sale of certain assets during the first quarter of 1998
and during 1997.
(3) A $0.1 million increase in administrative expenses due to higher
professional service costs.
(C) Net Gain on Disposition of Owned Equipment
The net gain on disposition of owned equipment for the first quarter of 1998
totaled $0.1 million which resulted from the sale of marine containers,
trailers, and railcars with an aggregate net book value of $0.3 million for
proceeds of $0.4 million. The net gain on disposition of owned equipment for the
first quarter of 1997 totaled $0.1 million which resulted from the sale of
marine containers and trailers with an aggregate net book value of $0.1 million
for proceeds of $0.1 million.
(D) Equity in Net Income (Loss) of Unconsolidated Special-purpose Entities
Equity in net income (loss) of unconsolidated special-purpose entities
represents net income generated from the operation of jointly-owned assets
accounted for under the equity method (see Note 5 to the financial statements)
(in thousands of dollars).
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1998 1997
------------------------------
<S> <C> <C>
Marine vessels $ 34 $ 90
Aircraft and aircraft engines (78 ) (116)
------------------------------
Equity in net (loss) $ (44 ) $ (26)
==============================
</TABLE>
Marine vessel: The Partnership's share of marine vessel revenues and expenses
was $0.6 million and $0.6 million, respectively, for the quarter ended March 31,
1998, compared to $0.6 million and $0.5 million, respectively, for the same
period of 1997. At March 31, 1998 and 1997, the Partnership owned a 50% interest
in an entity which owns a marine vessel. The increase in expense in the first
quarter of 1998 resulted from additional repairs and maintenance associated with
the vessel which were not required during the same period in 1997.
Aircraft and aircraft engines: The Partnership's share of aircraft revenues and
expenses was $0.1 million and $0.2 million, respectively, for the quarter ended
March 31, 1998, compared to $0.1 million and $0.2 million, respectively, for the
same period of 1997. As of March 31, 1998, the Partnership owned 50% and 12%
interests in entities which own commercial aircraft. The Partnership liquidated
its 18% interest in an entity which owned an aircraft during the first quarter
of 1998. The loss of $0.1 million for the quarter ended March 31, 1998, related
to the Partnership's 50% investment in a commercial aircraft which was off lease
during the first three months of 1998. The Partnership's remaining 12%
investment in a commercial aircraft operated at essentially break even during
the first quarter of 1998.
(E) Net Income
As a result of the foregoing, the Partnership's net income of $0.5 million for
the first quarter of 1998, decreased from net income of $0.8 million during the
same period in 1997. 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 first quarter of 1998 is not necessarily indicative of future periods. In
the first quarter of 1998, the Partnership distributed $5.1 million to the
unitholders, or $0.87 per weighted-average depositary unit.
<PAGE>
(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 the partners are permitted under the terms of
the Limited Partnership Agreement. The Partnership currently has no long-term
debt obligations. The Partnership relies on operating cash flows to meet its
operating obligations, maintain working capital reserves, and to make cash
distributions to the partners.
For the three months ended March 31, 1998, the Partnership generated $1.0
million operating cash (net cash provided by operating activities plus
distributions from unconsolidated special-purpose entities) to meet its
operating obligations and maintain the current level of distributions (total for
three months ended March 31, 1998 of approximately $1.6 million) to the
partners, but also used undistributed available cash from prior periods of
approximately $0.6 million. During the three months ended March 31, 1998, the
General Partner sold owned equipment on behalf of the Partnership and realized
proceeds of approximately $0.3 million. A special distribution of $3.5 million
($0.60 per weighted-average depositary unit) was paid on February 13, 1998.
(III) YEAR 2000 COMPLIANCE
The General Partner is currently addressing the year 2000 computer software
issue and is creating a timetable for carrying out any program modifications
that may be required. The General Partner does not anticipate that the cost of
those modifications allocable to the Partnership will be material.
(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.
(V) OUTLOOK FOR THE FUTURE
Since the Partnership entered its orderly liquidation phase in the beginning of
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 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 continuously 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: May 12, 1998 By: /s/ Richard K Brock
-------------------------------
Richard K Brock
Vice President and
Corporate Controller
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,809
<SECURITIES> 0
<RECEIVABLES> 846
<ALLOWANCES> (63)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 31,506
<DEPRECIATION> (24,080)
<TOTAL-ASSETS> 15,043
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 14,157
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 2,111
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,640
<LOSS-PROVISION> (116)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 543
<INCOME-TAX> 0
<INCOME-CONTINUING> 543
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 543
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
