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, 1999
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,
1999 1998
Assets
<S> <C> <C>
Equipment held for operating lease, at cost $ 24,942 $ 26,113
Less accumulated depreciation (20,921) (20,862)
-------------------------------------------
Net equipment 4,021 5,251
Cash and cash equivalents 1,239 3,289
Accounts receivable, net of allowance for doubtful accounts
of $28 in 1999 and $161 in 1998 398 305
Investments in unconsolidated special-purpose entities 1,975 4,149
Prepaid expenses and other assets -- 26
-----------------------------------------
Total assets $ 7,633 $ 13,020
===========================================
Liabilities and partners' capital
Liabilities:
Accounts payable and accrued expenses $ 126 $ 131
Due to affiliates 30 525
Lessee deposits and reserve for repairs 53 37
-----------------------------------------
Total liabilities 209 693
-----------------------------------------
Partners' capital :
Limited partners (5,785,350 depositary units
as of September 30, 1999 and December 31, 1998) 7,424 12,327
General Partner -- --
-----------------------------------------
Total partners' capital 7,424 12,327
-----------------------------------------
Total liabilities and partners' capital $ 7,633 $ 13,020
=========================================
</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,
1999 1998 1999 1998
----------------------------------------------------------------
REVENUES
<S> <C> <C> <C> <C>
Lease revenue $ 1,465 $ 1,833 $ 4,703 $ 5,641
Interest and other income 38 39 134 129
Net gain on disposition of equipment 8 464 148 684
----------------------------------------------------------------
Total revenues 1,511 2,336 4,985 6,454
----------------------------------------------------------------
EXPENSES
Depreciation 372 433 1,132 1,405
Repairs and maintenance 391 520 1,456 1,724
Management fees to affiliate 79 114 279 388
Insurance expense 9 10 26 (7)
General and administrative expenses to affiliates 71 112 215 402
Other general and administrative expenses 101 75 353 473
(Recovery of) provision for bad debt expense (4) 6
Total expenses 1,019 1,270 3,336 4,282
----------------------------------------------------------------
Equity in net income (loss) of unconsolidated
special-purpose entities (327) 112 2,369 247
----------------------------------------------------------------
Net income $ 165 $ 1,178 $ 4,018 $ 2,419
================================================================
PARTNERS' SHARE OF NET INCOME(LOSS)
Limited partners $ 114 $ 1,181 $ 3,929 $ 2,328
General Partner 51 (3) 89 91
----------------------------------------------------------------
Total $ 165 $ 1,178 $ 4,018 $ 2,419
================================================================
Net income per weighted-average depositary unit $ 0.02 $ 0.20 $ 0.68 $ 0.40
================================================================
Cash distributions $ 1,014 $ 1,030 $ 2,877 $ 3,668
Special distributions 4,091 -- 6,044 3,483
----------------------------------------------------------------
Total distributions $ 5,105 $ 1,030 $ 8,921 $ 7,151
================================================================
Per weighted-average depositary unit:
Cash distributions $ 0.17 $ 0.18 $ 0.49 $ 0.62
Special distributions 0.70 -- 1.03 0.60
================================================================
Total distributions $ 0.87 $ 0.18 $ 1.52 $ 1.22
================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FROM THE PERIOD DECEMBER 31, 1997 TO SEPTEMBER 30, 1999
(in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
--------------------------------------------------------
<S> <C> <C> <C>
Partners' capital (deficit) as of December 31, 1997 $ 18,887 $ (189) $ 18,698
Net income 1,536 271 1,807
Cash distributions (4,648) (47) (4,695)
Special distributions (3,448) (35) (3,483)
----------------------------------------------------------------------------------------------------------------------
Partners' capital as of December 31, 1998 12,327 -- 12,327
Net income 3,929 89 4,018
Cash distributions (2,848) (29) (2,877)
Special distributions (5,984) (60) (6,044)
--------------------------------------------------------
Partners' capital as of September 30, 1999 $ 7,424 $ -- $ 7,424
========================================================
</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,
1999 1998
----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,018 $ 2,419
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 1,132 1,405
Net gain on disposition of equipment (148) (684)
Equity in net income from unconsolidated
special-purpose entities (2,369) (247)
Changes in operating assets and liabilities:
Accounts receivable, net (93) 381
Due from affiliate -- 353
Prepaid expenses and other assets 26 31
Accounts payable and accrued expenses (5) (519)
Due to affiliates 37 (1)
Lessee deposits and reserve for repairs 16 (11)
----------------------------------
Net cash provided by operating activities 2,614 3,127
----------------------------------
INVESTING ACTIVITIES
Payments for capital improvements (25) (108)
Liquidation distributions from unconsolidated
special-purpose entity 4,262 1,103
(Additional investments in) distributions from unconsolidated
special-purpose entity (251) 838
Proceeds from disposition of equipment 271 1,565
----------------------------------
Net cash provided by investing activities 4,257 3,398
----------------------------------
FINANCING ACTIVITIES
Cash distributions paid to limited partners (2,848) (3,632)
Cash distributions paid to General Partner (29) (36)
Special distributions paid to limited partners (5,984) (3,448)
Special distributions paid to General Partner (60) (35)
----------------------------------
Net cash used in financing activities (8,921) (7,151)
----------------------------------
Net decrease in cash and cash equivalents (2,050) (626)
Cash and cash equivalents at beginning of period 3,289 4,585
----------------------------------
Cash and cash equivalents at end of period $ 1,239 $ 3,959
==================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
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 September 30, 1999 and December 31,
1998, the statements of income for the three and nine months ended
September 30, 1999 and 1998, the statements of changes in Partners' capital
from December 31, 1997 to September 30, 1999, and the statements of cash
flows for the nine months ended September 30, 1999 and 1998. 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, 1998, on file at the Securities and
Exchange Commission.
2. Schedule of Partnership Phases
The Partnership, in accordance with its limited partnership agreement,
entered its liquidation phase on January 1, 1998, and has commenced an
orderly liquidation of the Partnership assets. The Partnership will
terminate on December 31, 2006, unless terminated earlier upon the sale of
all equiment or by certain other events. The General Partner may no longer
reinvest cash flows and surplus funds in equipment. All future cash flows
and surplus funds, if any are to be used for distributions to partners,
except to the extent used to maintain reasonable reserves. During the
liquidation phase, the Partnership's assets will continue to be recorded at
the lower of the carrying amount or fair value less cost to sell.
3. Cash Distributions
Cash distributions are recorded when paid and may include amounts in excess
of net income that are considered to represent a return of capital. For the
nine months ended September 30, 1999 and 1998, cash distributions totaled
$2.9 million and $3.7 million, respectively. For the three months ended
September 30, 1999 and 1998 cash distributions totaled $1.0 million and
$1.0 million, respectively. In addition, $6.0 million and $3.5 million in
special distributions were paid during the nine months ended September 30,
1999 and 1998. For the three months ended September 30, 1999 and 1998,
special distributions totaled $4.0 million and $0, respectively. During the
nine months ended September 30, 1999 and 1998, cash and special
distributions to unitholders of $4.9 and $4.8 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 1999 will be paid during the fourth quarter of 1999.
4. Transactions with General Partner and Affiliates
The balance due to affiliates as of September 30, 1999, includes $30,000
due to FSI and its affiliate for management fees. The balance due to
affiliates as of December 31, 1998 includes $39,000 due to FSI and its
affiliate for management fees and $0.5 million due to affiliated
unconsolidated special purpose entities (USPEs).
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
4. Transactions with General Partner and Affiliates (continued)
The Partnership's proportional share of the affiliated expenses incurred by
the USPEs during 1999 and 1998 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,
1999 1998 1999 1998
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees $ (25) $ 37 $ 21 $ 103
Data processing and administrative
expenses 7 11 32 38
Insurance expense (2) 20 3 13
</TABLE>
5. Equipment
The components of owned equipment are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------------------------------
<S> <C> <C>
Railcars $ 21,386 $ 21,635
Marine containers 1,805 2,039
Trailers 1,751 2,439
---------------------------------------------------------------------------------------------------------
24,942 26,113
Less accumulated depreciation (20,921 ) (20,862 )
================================
Net equipment $ 4,021 $ 5,251
================================
</TABLE>
As of September 30, 1999, all equipment in the Partnership's owned
equipment portfolio was on lease or operating in PLM-affiliated short-term
trailer rental facilities, except for 19 railcars with an aggregate net
book value of $0.1 million. As of December 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 23 marine
containers and 5 railcars with an aggregate net book value of $23,000.
Capital improvements to the Partnership's equipment of $25,000 and $0.1
million were made during the nine months ended September 30, 1999 and
September 30, 1998, respectively.
During the nine months ended September 30, 1999, the Partnership sold or
disposed of marine containers, railcars, and trailers, with an aggregate
net book value of $0.1 million, for proceeds of $0.3 million. 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.
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
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,
1999 1998
----------------------------------------
<S> <C> <C>
50% interest in an entity owning a Product Tanker $ 1,418 $ 1,585
50% interest in an entity owning a Boeing 737-200 529 498
12% interest in an entity that owned a Boeing 767-200 26 2,064
18% interest in an entity that owned a Boeing 727-200 2 2
----------------------------------------
Net investments $ 1,975 $ 4,149
========================================
</TABLE>
The Boeing 737-200 aircraft in which the Partnership owned a 50% interest
was off lease as of September 30, 1999 and December 31, 1998. During the
quarter ended June 30, 1999, the Partnership's interest in the Boeing
767-200 ER was sold for proceeds of $4.8 million.
7. Operating Segments
The Partnership operates primarily in four different segments: railcar
leasing, trailer leasing, marine container leasing, and aircraft leasing.
Each equipment leasing segment engages in short-term and mid-term operating
leases to a variety of customers. The following tables present a summary of
the operating segments (in thousands of dollars):
<TABLE>
<CAPTION>
Marine
For the three months ended Railcar Trailer Container Aircraft All
September 30, 1999 Leasing Leasing Leasing Leasing Other<F1>1 Total
------------------ ------- ------- ------- ------- ------ -----
REVENUES
<S> <C> <C> <C> <C> <C> <C>
Lease revenue $ 1,338 $ 107 $ 20 $ -- $ -- $ 1,465
Interest income and other -- -- -- -- 38 38
Net gain(loss) on disposition
of equipment -- 3 (1) 6 -- 8
---------------------------------------------------------------------------
Total revenues 1,338 110 19 6 38 1,511
COST AND EXPENSES
Operations support 355 40 -- -- 5 400
Depreciation 325 23 24 -- -- 372
General and administrative --
expenses 60 19 -- 93 172
Management fees -- -- -- -- 79 79
(Recovery of) provision for bad debts (11) 7 -- (4)
----------------------------------------------------------------------------
Total costs and expenses 729 89 24 -- 177 1,019
Equity in net loss of USPEs -- -- -- (98) (229) (327)
----------------------------------------------------------------------------
Net income (loss) $ 609 $ 21 (5) $ (92) $ (368) $
============================================================================
Total assets as of September 30, 1999$ 3,314 $ 523 $ 451 $ 557 $ 2,788 $ 7,633
============================================================================
<FN>
<F1> 1 Includes revenues and costs not identifiable to a particular
segment such as interest expense, certain interest income, and other
operations support and general and administrative expenses. Also
includes income from an investment in an entity owning a marine
vessel.
</FN>
</TABLE>
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
7. Operating Segments (continued)
<TABLE>
<CAPTION>
Marine
For the three months ended Railcar Trailer Container Aircraft All
September 30, 1998 Leasing Leasing Leasing Leasing Other<F1>1 Total
------------------ ------- ------- ------- ------- ------ -----
REVENUES
<S> <C> <C> <C> <C> <C> <C>
Lease revenue $ 1,494 $ 284 $ 55 $ -- $ -- $ 1,833
Interest income and other -- -- -- -- 39 39
Net gain on disposition
Of equipment 81 383 -- -- -- 464
--------------------------------------------------------------------------
Total revenues 1,575 667 55 -- 39 2,336
Cost and Expenses
Operations support 459 64 1 -- 6 530
Depreciation 335 59 39 -- -- 433
General and administrative
expenses 20 46 1 6 114 187
Management fees -- -- -- -- 114 114
Provision for bad debts 5 1 -- -- -- 6
--------------------------------------------------------------------------
Total costs and expenses 819 170 41 6 234 1,270
Equity in net income (loss) of USPEs -- -- -- (82) 194 112
--------------------------------------------------------------------------
Net income (loss) $ 756 $ 497 $ 14 $ (88) $ (1) $ 1,178
==========================================================================
Total assets as of September 30, $ 4,457 $ 658 $ 816 $ 2,518 $ 6,294 $ 14,743
1998
==========================================================================
<PAGE>
Marine
For the nine months ended Railcar Trailer Container Aircraft All
September 30, 1999 Leasing Leasing Leasing Leasing Other<F1>1 Total
------------------ ------- ------- ------- ------- ------ -----
Revenues
Lease revenue $ 4,235 $ 360 $ 108 $ -- $ -- $ 4,703
Interest income and other -- -- 5 -- 129 134
Net gain (loss) on disposition --
Of equipment 52 88 (4) 12 -- 148
----------------------------------------------------------------------------
Total revenues 4,287 448 109 12 129 4,985
Cost and Expenses
Operations support 1,363 104 1 -- 14 1,482
Depreciation 975 83 74 -- -- 1,132
General and administrative --
expenses 156 85 2 2 323 568
Management fees -- -- -- -- 279 279
(Recovery of) provision for bad (136) 14 -- -- (3) (125)
debts
----------------------------------------------------------------------------
Total costs and expenses 2,358 286 77 2 613 3,336
Equity in net income (loss) of USPEs -- -- -- 2,605 (236) 2,369
----------------------------------------------------------------------------
Net income (loss) $ 1,929 $ 162 32 $ 2,615 (720) $ 4,018
============================================================================
Total assets as of September 30, 1999 $ 3,314 $ 523 451 $ 557 2,788 $ 7,633
============================================================================
<FN>
<F1> 1 Includes revenues and costs not identifiable to a particular
segment such as interest expense, certain interest income, and other
operations support and general and administrative expenses. Also
includes income from an investment in an entity owning a marine
vessel.
</FN>
</TABLE>
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
7. Operating Segments (continued)
<TABLE>
<CAPTION>
Marine
For the nine months ended Railcar Trailer Container Aircraft All
September 30, 1998 Leasing Leasing Leasing Leasing Other<F1>1 Total
------------------ ------- ------- ------- ------- ------ -----
Revenues
<S> <C> <C> <C> <C> <C> <C>
Lease revenue $ 4,472 $ 1,010 $ 159 $ -- $ -- $ 5,641
Interest income and other -- -- -- -- 129 129
Net gain (loss) on disposition
Of equipment 132 574 10 (32) -- 684
--------------------------------------------------------------------------
Total revenues 4,604 1,584 169 (32) 129 6,454
Cost and Expenses
Operations support 1,452 285 2 -- (22) 1,717
Depreciation 1,003 269 133 -- -- 1,405
General and administrative
expenses 147 242 3 13 470 875
Management fees -- -- -- 388 388
Provision for (recovery) of bad (120) 17 -- -- -- (103)
debts
--------------------------------------------------------------------------
Total costs and expenses 2,482 813 138 13 836 4,282
Equity in net income (loss) of -- -- -- (265) 512 247
USPEs
--------------------------------------------------------------------------
Net income (loss) $ 2,122 $ 771 $ 31 $ (310) $ (195) $ 2,419
==========================================================================
Total assets as of September 30,
1998 $ 4,457 $ 658 $ 816 $ 2,518 $ 6,294 $ 14,743
==========================================================================
<FN>
<F1> 1 Includes revenues and costs not identifiable to a particular
segment such as interest expense, certain interest income, and other
operations support and general and administrative expenses. Also
includes income from an investment in an entity owning a marine
vessel.
</FN>
</TABLE>
8. Net Income Per Weighted-Average Partnership Unit
Net income per weighted-average Partnership unit was computed by dividing
net income attributable to limited partners by the weighted-average number
of Partnership units deemed outstanding during the period. The
weighted-average number of Partnership units deemed outstanding during the
three and nine months ended September 30, 1999 and 1998 was 5,785,350.
9. Contingencies
The Partnership, together with affiliates, has initiated litigation in
various official forums in India against a defaulting Indian airline lessee
to repossess Partnership property and to recover damages for failure to pay
rent and failure to maintain such property in accordance with relevant
lease contracts. The Partnership has repossessed all of its property
previously leased to such airline, and the airline has ceased operations.
In response to the Partnership's collection efforts, the airline filed
counterclaims against the Partnership in excess of the Partnership's claims
against the airline. The General Partner believes that the airline's
counterclaims are completely without merit and the General Partner will
vigorously defend against such counterclaims. The General Partner believes
an unfavorable outcome from the counterclaims is remote.
<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, 1999 and 1998
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance and
asset-specific insurance expenses) on owned equipment decreased during the
quarter ended September 30, 1999, compared to the same period of 1998. Gains or
losses from the sale of equipment, interest and other income and certain
expenses such as depreciation and general and administrative expenses relating
to the operating segments (see Note 7 to the financial statements), are not
included in the owned equipment operation discussion because they are indirect
in nature and not a result of operations but the result of owning a portfolio of
equipment. The following table presents lease revenues less direct expenses by
owned equipment type (in thousands of dollars):
For the Three Months
Ended September 30,
1999 1998
----------------------------
Railcars $ 983 $ 1,035
Trailers 67 220
Marine containers 20 55
Railcars: Railcar lease revenues and direct expenses were $1.3 million and $0.4
million, respectively, for the quarter ended September 30, 1999, compared to
$1.5 million and $0.5 million, respectively, for the same period of 1998.
Railcar revenues decreased due to the sale of railcars during the second half of
1998 and the first nine months of 1999. Railcar expenses decreased due to lower
repair and maintenance expense in third quarter 1999, which were required on
some of the tankcars in the same quarter of 1998.
Trailers: Trailer lease revenues and direct expenses were $0.1 million and
$40,000 respectively, for the quarter ended September 30, 1999, compared to $0.3
million and $0.1 million, respectively, for the same period of 1998. 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
$20,000 and $0, respectively, for the quarter ended September 30, 1999, compared
to $0.1 million and $1,000, respectively, for the same period of 1998. The
decrease in revenues is due to the sales and dispositions of marine containers
over the past twelve months.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $0.6 million for the quarter ended September 30, 1999
decreased from $0.7 million for the same period of 1998. The decrease is due
primarily to decreases in depreciation of $0.1 million and management fee
expenses of $36,000 from 1998 levels resulting from the sale of certain assets
during 1999 and 1998.
(C) Net Gain on Disposition of Owned Equipment
The net gain on disposition of owned equipment for the third quarter of 1999
totaled $8,000, and resulted from the sale of marine containers and trailers,
with an aggregate net book value of $26,000, for aggregate proceeds of $34,000.
For the third quarter of 1998, net gain on sales 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.
(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):
For the Three Months
Ended September 30,
1999 1998
----------------------------
Aircraft (99) (83)
Marine vessel $ (228) $ 195
-----------------------------
Equity in net income (loss) $ (327) $ 112
=============================
Aircraft: As of September 30, 1999, the Partnership had an interest in an entity
that owned a commercial aircraft. The Partnership's share of aircraft revenues
and expenses was $0 and $0.1 million, respectively, for the quarter ended
September 30, 1999, compared to $0.2 million and $0.2 million, respectively, for
the same period of 1998. This aircraft was off-lease during the third quarter of
1999 and 1998. Direct expenses in this entity decreased due to decreased repairs
on this aircraft. The Partnership sold its 12% interest in an entity that owned
an aircraft during the second quarter of 1999, which resulted in lower revenue
and expenses during the third quarter ended September 30, 1999 compared to the
same period in 1998.
Marine vessel: As of September 30, 1999 and 1998, the Partnership had an
interest in an entity that owns a marine vessel. The Partnership's share of
marine vessel revenues and expenses was $0.5 million and $0.7 million,
respectively, for the quarter ended September 30, 1999, compared to $0.7 million
and $0.5 million, respectively, for the same period of 1998. The decrease in
contribution in the third quarter of 1999 resulted from the vessel being
off-lease during part of the third quarter of 1999, as the vessel had regularly
scheduled maintenance performed. The vessel was on lease during the third
quarter of 1998.
(E) Net Income
As a result of the foregoing, the Partnership's net income of $0.2 million for
the third quarter of 1999 compared to net income of $1.2 million during the same
period of 1998. The Partnership's ability to operate and liquidate assets,
secure leases, and re-lease those assets whose leases expire is subject to many
factors, and the Partnership's performance in the third quarter of 1999 is not
necessarily indicative of future periods. In the third quarter of 1999, the
Partnership distributed $1.0 million to the unitholders, or $0.17 per
weighted-average depositary unit. Also in the third quarter of 1999, a special
distribution of $4.1 million was distributed to the unitholders, or $0.70 per
weighted-average depositary unit.
<PAGE>
Comparison of the Partnership's Operating Results for the Nine Months Ended
September 30, 1999 and 1998
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance and
asset-specific insurance expenses) on owned equipment decreased during the nine
months ended September 30, 1999, compared to the same period of 1998. Gains or
losses from the sale of equipment, interest and other income and certain
expenses such as depreciation and general and administrative expenses relating
to the operating segments (see Note 7 to the financial statements), are not
included in the owned equipment operation discussion because they are indirect
in nature and not a result of operations but the result of owning a portfolio of
equipment. The following table presents lease revenues less direct expenses by
owned equipment type (in thousands of dollars):
For the Nine Months
Ended September 30,
1999 1998
----------------------------
Railcars $ 2,872 3,021
Trailers 256 725
Marine containers 107 157
Railcars: Railcar lease revenues and direct expenses were $4.2 million and $1.4
million, respectively for the nine months ended September 30, 1999, compared to
$4.5 million and $1.5 million, respectively, during the same period of 1998.
Railcar revenues decreased due to the sale of railcars during the second half of
1998 and the first nine months of 1999. Railcar expenses are lower due to a
decrease in repair and maintenance expense in 1999 compared to 1998.
Trailers: Trailer lease revenues and direct expenses were $0.4 million and $0.1
million, respectively, for the nine months ended September 30, 1999, compared to
$1.0 million and $0.3 million, respectively, during the same period of 1998. 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 nine months ended September 30, 1999,
compared to $0.2 million and $3,000, respectively, during the same period of
1998. 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.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $1.9 million for the nine months ended September 30,
1999 decreased from $2.6 million for the same period in 1998. Significant
variances are explained as follows:
(1) A $0.3 million decrease in general and administrative expense due to the
reduction of the equipment portfolio of the Partnership which has led to reduced
data processing, travel, and cost for professional services.
(2) A $0.3 million decrease in depreciation expenses from 1998 levels reflecting
the sale of certain assets during 1999 and during 1998.
(3) A $0.1 million decrease in management fee expense due to reduced cash flows
from operations in 1999, compared to the same period in 1998.
(C) Net Gain on Disposition of Owned Equipment
Net gain on disposition of equipment for the nine months ended September 30,
1999 totaled $0.1 million, and resulted from the sale of marine containers,
railcars, and trailers with a net book value of $0.1 million, for proceeds of
$0.3 million. For the nine months ended September 30, 1998, the net gain on sale
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.
(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):
For the Nine Months
Ended September 30,
1999 1998
-----------------------------
Aircraft $ 2,605 $ (295)
Marine vessel (236) 542
------------------------------
Equity in net income $ 2,369 $ 247
===============================
Aircraft: As of September 30, 1999, the Partnership had an interest in one
entity that owned a commercial aircraft. The Partnership's share of aircraft
revenues and expenses was $3.2 million and $0.6 million, respectively, for the
nine months ended September 30, 1999, compared to $0.4 million and $0.7 million,
respectively, during the same period of 1998. Revenues were lower in 1999 by
$0.1 million due to the plane being off-lease prior to being sold. The
Partnership sold its 12% interest in this entity during the second quarter of
1999, and recognized a gain on sale of $3.0 million. The Partnership's 50%
interest in an entity that owns a commercial aircraft was off-lease during the
first nine months of 1999 and 1998. Direct expenses in this entity decreased due
to decreased repairs required on this aircraft.
Marine vessel: As of September 30, 1999 and 1998, the Partnership had an
interest in an entity that owns a marine vessel. The Partnership's share of
marine vessel revenues and expenses was $1.6 million and $1.9 million,
respectively, for the nine months ended September 30, 1999, compared to $1.9
million and $1.4 million, respectively, during the same period of 1998. The
decrease in contribution for the nine months ended September 30, 1999 resulted
from the vessel being partially off-lease in the second and third quarters of
1999, as the vessel had regularly scheduled maintenance performed. Similar
maintenance was not performed in 1998.
(E) Net Income
As a result of the foregoing, the Partnership's net income of $4.0 million for
the nine months ended September 30, 1999 compared to net income of $2.4 million
during the same period in 1998. The Partnership's ability to operate and
liquidate assets, secure leases, and re-lease those assets whose leases expire
is subject to many factors, and the Partnership's performance in the first nine
months of 1999 is not necessarily indicative of future periods. During the nine
months ended September 30, 1999, the Partnership distributed $2.9 million to the
unitholders, or $0.49 per weighted-average depositary unit. In addition, special
distributions totaling $6.0 million, or $1.03 per weighted-average depositary
unit were made in the first nine months of 1999.
(II) Financial Condition -- Capital Resources, Liquidity, and Distributions
For the nine months ended September 30, 1999, the Partnership generated $2.3
million in operating cash (net cash provided by operating activities less
additional investments in unconsolidated special purpose entities) to meet its
operating obligations and maintain the current level of distributions (total for
nine months ended September 30, 1999 of approximately $8.9 million, which
includes a special distribution of $6.0 million) to the partners, but used
undistributed available cash from prior periods and asset sales proceeds of
approximately $0.6 million.
During the nine months ended September 30, 1999, the General Partner sold
equipment on behalf of the Partnership and realized proceeds of approximately
$0.3 million.
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.
The Partnership is in its active liquidation phase. As a result, the size of the
Partnership's remaining equipment portfolio and, in turn, the amount of net cash
flows from operations will continue to become progressively smaller as assets
are sold. 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) YEAR 2000 COMPLIANCE
It is possible that the General Partner's currently installed computer systems,
software products, and other business systems, or those of 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 possibility commonly known as the "Year 2000" or "Y2K" 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 business systems in order to
determine whether such systems will retain functionality after December 31,
1999. As of September 30, 1999, the General Partner has completed Inventory,
Assessment, Remediation and Testing Stages of its Year 2000 review of its core
business information systems. Specifically, the General Partner (a) has
integrated 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
been made Year 2000 compliant. In addition, numerous other software systems
provided by vendors and service providers have been replaced with systems
represented by the vendor or service provider to be Year 2000 functional. These
systems have been tested and appear to be to be compliant.
As of September 30, 1999, the costs incurred and allocated to the Fund to become
Year 2000 compliant have not been material and does not anticipate any
additional Year 2000-compliant expenditures.
Some risks associated with the Year 2000 problem are beyond the ability of the
Partnership or General Partner to control, including the extent to which third
parties can address the Year 2000 problem. The General Partner is communicating
with vendors, services providers, and customers in order to assess the Year 2000
readiness of such parties and the extent to which the Partnership is vulnerable
to any third-party Year 2000 issues. As part of this process, vendors and
service providers were ranked in terms of the relative importance of the service
or product provided. All service providers and vendors who were identified as
medium to high relative importance, were surveyed to determine Year 2000 status.
The General Partner has received satisfactory response to Year 2000 readiness
inquiries from surveyed service providers and vendors.
It is possible that certain of the Partnership's equipment lease portfolio may
not be Year 2000 compliant. The General Partner has contacted equipment
manufacturers of the portion of the Partnership's leased equipment portfolio
identified as date sensitive to assure Year 2000 compliance or to develop
remediation strategies. The Partnership does not expect that non-Year 2000
compliance of its leased equipment portfolio will have an adverse material
impact on its financial statements. The General Partner has surveyed the
majority of its Lessees and the majority of those surveyed have responded
satisfactorily to Year 2000 readiness inquiries.
There can be no assurance that the software systems of such parties will be
converted or made Year 2000 compliant in a timely manner. 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 has
made and will continue an ongoing effort to recognize and evaluate potential
exposure relating to third-party Year 2000 noncompliance. The General Partner
will implement a contingency plan if the General Partner determines that
third-party noncompliance would have a material adverse effect on the
Partnership's business, financial position, or results of operation.
The General Partner is currently developing a contingency plan to address the
possible failure of any systems or vendors or service providers due to Year 2000
problems. For the purpose of such contingency planning, a reasonably likely
worst case scenario primarily anticipates an inability to access systems and
data on a temporary basis resulting in possible delay in reconciliation of funds
received or payment of monies owed. The General Partner is evaluating whether
there are additional scenarios which have not been identified. Contingency
planning will encompass strategies up to and including manual processes. The
General Partner anticipates that these plans will be completed by the fourth
quarter of 1999.
(IV) OUTLOOK FOR THE FUTURE
Since the Partnership is in its active liquidation phase, the General Partner is
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 the
remainder of 1999 and beyond, including changes in the markets for the
Partnership's equipment and changes in the regulatory environment in which that
equipment operates.
Liquidation of Partnership equipment and investments in USPEs represents a
reduction in the size of the equipment portfolio and may result in a reduction
of contribution to the Partnership. Other factors affecting the Partnership's
contribution in the remainder of 1999 and beyond include:
1. The Partnership's remaining aircraft which it jointly owns with an affiliated
Partnership has been off-lease for over two years. The aircraft required
extensive repairs and maintenance and has had difficulty being re-leased or
sold. This aircraft will remain off-lease until it's sold.
2. Railcar loadings in North America continued to be high, however a softening
in the market is expected in the remainder of 1999 and into 2000, which may lead
to lower utilization and lower contribution to the Partnership.
3. The Partnership's 50% interest in a 1976 built product tanker continues to
operate in the spot charter market. Charter rates in this market continue to be
at historically low levels. Although long term market expectations are for some
rate improvements, given the age of the vessel, the Partnership will likely sell
it's interest in this vessel during 2000.
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.
(V) 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposure is that of currency devaluation
risk. During the nine months ended September 30, 1999, 86% of the Partnership's
total lease revenues from wholly- and partially-owned equiment came from
non-United States domiciled lessees. Most of the leases require payment in the
United States (U.S.) currency. If these lessees currency devalues against the
U.S. dollar, the lessees could potentially encounter difficulty in making the
U.S. dollar denominated lease payments.
This page left blank intentionally
<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: October 27, 1999 By: /s/ Richard K Brock
--------------------------
Richard K Brock
Vice President and
Corporate Controller
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,239
<SECURITIES> 0
<RECEIVABLES> 426
<ALLOWANCES> 28
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<PP&E> 24,942
<DEPRECIATION> 20,921
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0
<COMMON> 0
<OTHER-SE> 7,424
<TOTAL-LIABILITY-AND-EQUITY> 7,633
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<CGS> 0
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