UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal quarter ended March 31, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
Commission file number 1-10813
-----------------------
PLM EQUIPMENT GROWTH FUND III
(Exact name of registrant as specified in its charter)
California 68-0146197
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 III
(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 $ 104,563 $ 105,308
Less accumulated depreciation (69,081 ) (67,234 )
---------------------------------------
Net equipment 35,482 38,074
Cash and cash equivalents 4,230 4,239
Accounts and notes receivable, net of allowance for
doubtful accounts of $1,950 in 1998 and $1,837 in 1997 717 1,316
Investments in unconsolidated special-purpose entities 7,442 9,179
Prepaid expenses 46 71
Deferred charges, net of accumulated amortization of
$383 in 1998 and $348 in 1997 266 307
Total assets $ 48,183 $ 53,186
=======================================
Liabilities and partners'capital
Liabilities:
Accounts payable and accrued expenses $ 794 $ 1,294
Due to affiliates 128 2,208
Lessee deposits and reserves for repairs 929 835
Note payable 29,290 29,290
---------------------------------------
Total liabilities 31,141 33,627
---------------------------------------
Partners' capital:
Limited partners (9,871,073 depositary units as of
March 31, 1998 and as of December 31, 1997) 17,042 19,559
General Partner -- --
Total partners' capital 17,042 19,559
Total liabilities and partners' capital $ 48,183 $ 53,186
=======================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
STATEMENTS OF OPERATIONS
(in thousands of dollars, except weighted-average unit amounts)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1998 1997
--------------------------
<S> <C> <C>
Revenues
Lease revenue $ 4,282 $ 4,991
Interest and other income 59 95
Net gain (loss) on disposition of equipment (10) 90
-------------------------------
Total revenues 4,331 5,176
-------------------------------
Expenses
Depreciation and amortization 2,395 3,556
Management fees to affiliate 242 293
Repairs and maintenance 570 1,415
Equipment operating expenses 40 7
Interest expense 529 796
Insurance expense 83 45
General and administrative expenses to affiliates 155 182
Other general and administrative expenses 105 144
Provision for (recovery of) bad debt expense 127 (25)
-------------------------------
Total expenses 4,246 6,413
-------------------------------
Equity in net income (loss) of unconsolidated special-purpose entities (5) 185
-------------------------------
Net income (loss) $ 80 $ (1,052)
===============================
Partners' share of net income (loss)
Limited partners $ (50) $ (1,182)
General Partner 130 130
-------------------------------
Total $ 80 $ (1,052)
===============================
Net loss per weighted-average depositary unit (9,871,073 units as of
March 31, 1998 and March 31, 1997) $ (0.01) $ (0.12)
===============================
Cash distribution $ 2,597 $ 2,598
===============================
Cash distribution per weighted-average depositary unit $ 0.25 $ 0.25
===============================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS'
CAPITAL For the Period from December 31, 1996
to March 31, 1998
(in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
------------------------------------------------
<S> <C> <C> <C>
Partners' capital as of December 31, 1996 $ 28,013 $ -- $ 28,013
Net income 1,417 520 1,937
Cash distribution (9,871) (520) (10,391)
-----------------------------------------------------
Partners' capital as of December 31, 1997 19,559 -- 19,559
Net income (loss) (50) 130 80
Cash distribution (2,467) (130) (2,597)
-----------------------------------------------------
Partners' capital as of March 31, 1998 $ 17,042 $ -- $ 17,042
=====================================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(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 (loss) $ 80 $ (1,052)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,395 3,556
Net (gain) loss on disposition of equipment 10 (90)
Equity in net (income) loss from unconsolidated special-purpose entities 5 (185)
Changes in operating assets and liabilities:
Restricted cash -- (77)
Accounts and notes receivable, net 599 25
Prepaid expenses 25 18
Accounts payable and accrued expenses (500 ) (458)
Due to affiliates (288 ) (201)
Lessee deposits and reserves for repairs 94 (127)
-------------------------------
Net cash provided by operating activities 2,420 1,409
-------------------------------
Investing activities
Payments for capitalized repairs (26 ) (5)
Distributions from unconsolidated special-purpose entities 1,732 1,751
Proceeds from disposition of equipment 254 375
-------------------------------
Net cash provided by investing activities 1,960 2,121
-------------------------------
Financing activities
Principal repayments under notes payable -- (319)
Payment due to affiliates (1,792 ) --
Cash distribution paid to General Partner (130 ) (130)
Cash distribution paid to limited partners (2,467 ) (2,468)
-------------------------------
Net cash used in financing activities (4,389 ) (2,917)
-------------------------------
Net increase (decrease) in cash and cash equivalents (9 ) 613
Cash and cash equivalents at beginning of period 4,239 1,414
-------------------------------
Cash and cash equivalents at end of period $ 4,230 $ 2,027
===============================
Supplemental information
Interest paid $ 529 $ 1,016
===============================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(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. (FSI), or the
General Partner, the accompanying unaudited financial statements contain all
adjustments necessary, consisting primarily of normal recurring accruals, to
present fairly the financial position of PLM Equipment Growth Fund III (the
Partnership) as of March 31, 1998 and December 31, 1997, the statements of
operations and the statements of cash flows for the three months ended March 31,
1998 and 1997, and the statement of changes in partners' capital for the period
from December 31, 1996 to March 31, 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, 1997,
on file with the Securities and Exchange Commission.
2. Cash Distributions
Cash distributions are recorded when paid and totaled $2.6 million for the three
months ended March 31, 1998 and 1997. Cash distributions to unitholders in
excess of net income are considered to represent a return of capital. Cash
distributions to unitholders of $2.5 million during the three months ended March
31, 1998 and 1997 were deemed to be a return of capital.
Cash distributions of $0.25 per 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. These cash distributions will amount to $2.6 million.
3. Transactions with General Partner and Affiliates
Partnership management fees payable to an affiliate of the General Partner were
$0.1 million and $0.4 million as of March 31, 1998 and December 31, 1997,
respectively. The Partnership's proportional share of affiliated management fees
with unconsolidated special-purpose entities (USPEs) of $21,000 and $0.1 million
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 $ 28 $ 43
Data processing and administrative expenses 15 11
Insurance expense 2 27
</TABLE>
Transportation Equipment Indemnity Company, Ltd. (TEI), an affiliate of the
General Partner, provides marine insurance coverage for Partnership equipment
and other insurance brokerage services. TEI did not provide the same insurance
coverage during 1998 as had been provided for during 1997. These services were
provided by an unaffiliated third party.
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
4. Equipment
The components of owned equipment held for operating leases are as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-----------------------------------
<S> <C> <C>
Aircraft and aircraft engines $ 46,282 $ 46,282
Rail equipment 34,862 34,859
Mobile offshore drilling unit 9,666 9,666
Marine containers 7,080 7,421
Trailers 6,673 7,080
104,563 105,308
Less accumulated depreciation (69,081) (67,234 )
---------------------------------------
Net equipment $ 35,482 $ 38,074
=======================================
</TABLE>
As of March 31, 1998, all equipment in the Partnership portfolio was either on
lease or operating in PLM-affiliated short-term trailer rental facilities, with
the exception of 51 railcars and 25 marine containers with an aggregate carrying
value of $0.3 million. As of December 31, 1997, all equipment in the Partnership
portfolio was either on lease or operating in PLM-affiliated short-term rental
facilities, with the exception of 28 marine containers and 41 railcars with an
aggregate carrying value of $0.3 million.
During the three months ended March 31, 1998, the Partnership sold or disposed
of marine containers, trailers, and a railcar, with an aggregate net book value
of $0.3 million for proceeds of $0.3 million. During the three months ended
March 31, 1997, the Partnership sold or disposed of marine containers and
railcars, with an aggregate net book value of $0.3 million for proceeds of $0.4
million.
5. Investments in Unconsolidated Special-purpose Entities (USPE)
The net investment in USPEs includes the following jointly-owned equipment (and
related assets and liabilities) (in thousands of dollars):
<TABLE>
<CAPTION>
March 31, December 31,
Equipment 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
56% interest in an entity owning a marine vessel $ 3,002 $ 3,104
17% Interest in two trusts that own three commercial aircraft, two
aircraft engines, and a portfolio of rotable components 2,547 4,021
50% interest in a trust that owns two commercial aircraft 1,893 --
25% interest in a trust that owns four commercial aircraft -- 2,054
Net investments $ 7,442 $ 9,179
=============================
</TABLE>
The Partnership has an interest in a USPE that owns multiple aircraft (the
Trust). This Trust contains provisions, under certain circumstances, for
allocating specific aircraft to the beneficial owners. During the first quarter
of 1998, PLM Equipment Growth & Income Fund VII and Professional Lease
Management Income Fund I, LLC, both affiliated programs, each sold the aircraft
designated to it. The result for the Partnership was to restate the ownership in
the Trust from 25% to 50%. This change had no effect on the income or loss
recognized during the first quarter of 1998.
6, Subsequent Event
During May 1998, the Partnership increased its investment in the USPE that owns
two commercial aircraft by funding the installation of a hushkit to the aircraft
assigned to it at a cost of $1.2 million.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(I) RESULTS OF OPERATIONS
Comparison of the Partnership's Operating Results for the Three Months Ended
March 31, 1998 and 1997
Owned Equipment Operations
Lease revenues less direct expenses (repairs and maintenance, equipment
operating expense, and asset-specific insurance) on owned equipment increased
for the quarter ended March 31, 1998 when compared to the same period of 1997.
The following table presents results by owned equipment type (in thousands of
dollars):
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1998 1997
------------------------------------------------------------
<S> <C> <C>
Aircraft and aircraft engines $ 1,557 $ 904
Rail equipment 1,312 1,533
Mobile offshore drilling unit 395 398
Trailers 265 400
Marine containers 116 301
Marine vessels -- (4)
</TABLE>
Aircraft and aircraft engines: Aircraft lease revenues and direct expenses were
$1.6 million and $0.1 million, respectively, for the quarter ended March 31,
1998, compared to $1.9 million and $1.0 million, respectively, during the same
period of 1997. Lease revenues decreased $0.3 million during the three months
ended March 31, 1998, when compared to the same period in 1997 due to the sale
of two aircraft during the third and fourth quarters of 1997. During the three
months ended March 31, 1997, the Partnership incurred $1.0 million in repairs on
one aircraft to prepare it for re-lease; a similar expense was not needed during
the same period of 1998.
Rail equipment: Railcar lease revenues and direct expenses were $1.8 million and
$0.5 million, respectively, for the quarter ended March 31, 1998, compared to
$1.9 million and $0.3 million, respectively, during the same period of 1997. The
increase in direct expenses resulted from running repairs required on certain
railcars in the fleet during the first quarter of 1998 that were not needed
during the first quarter of 1997. Additionally, there was a decrease in lease
revenues due to more railcars being off lease during the first quarter of 1998
when compared to the first quarter of 1997 and to the disposition of rail
equipment during 1998 and 1997.
Mobile offshore drilling unit: Mobile offshore drilling unit lease revenues and
direct expenses were $0.4 million and $10,000, respectively, for the quarter
ended March 31, 1998, compared to $0.4 million and $7,000 respectively, during
the same period of 1997
Trailers: Trailer lease revenues and direct expenses were $0.3 million and $0.1
million, respectively, for the quarter ended March 31, 1998, compared to $0.5
million and $0.1 million, respectively, during the same period of 1997. The
number of trailers owned by the Partnership has been declining due to sales and
dispositions. The result of this declining fleet is a decrease in trailer
contribution.
Marine containers: Marine container lease revenues and direct expenses were $0.1
million and $2,000, respectively, for the quarter ended March 31, 1998, compared
to $0.3 million and $3,000, respectively, during the same period of 1997. The
number of marine containers owned by the Partnership has been declining due to
sales and dispositions. The result of this declining fleet is a decrease in
marine container contribution.
(B) Indirect Operating Expenses Related to Owned Equipment Operations
Total indirect expenses of $3.6 million for the quarter ended March 31, 1998
decreased from $4.9 million for the same period of 1997. Significant variances
are explained as follows:
(1) A decrease of $1.2 million in depreciation and amortization expense
from 1997 levels reflects the sale of certain equipment during 1998 and 1997 and
the double-declining balance method of depreciation.
(2) A decrease of $0.3 million in interest expense was due to lower average
debt outstanding during the three months ended March 31, 1998 when compared to
the same period of 1997.
(3) An increase of $0.2 million in bad debt expense primarily reflects the
Partnership's evaluation of the collectibility of certain receivable balances.
(C) Net Gain (Loss) on Disposition of Owned Equipment
The net loss on the disposition of owned equipment for the first quarter of 1998
totaled $10,000 and resulted from the disposition of marine containers,
trailers, and a railcar, with an aggregate net book value of $0.3 million, for
aggregate proceeds of $0.3 million. The net gain of $0.1 million in the first
quarter of 1997 resulted from the disposition of marine containers and railcars,
with an aggregate net book value of $0.3 million for aggregate proceeds of $0.4
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 March 31,
1998 1997
------------------------
Aircraft, aircraft engines, and rotables $ 73 $ 216
Marine vessel (78) (31)
------------------------
Equity in net income (loss) of USPEs $ (5) $ 185
========================
Aircraft and aircraft engines, and rotables: The Partnership's share of aircraft
revenues and expenses was $0.5 million and $0.4 million, respectively, for the
quarter ended March 31, 1998, compared to $0.7 million and $0.5 million,
respectively, during the same period of 1997. As of March 31, 1998, the
Partnership had a beneficial interest in three trusts that own five commercial
aircraft, two aircraft engines, and a package of aircraft rotables. The decrease
in lease revenues was due to the renewal of the leases for three commercial
aircraft, two aircraft engines, and a portfolio of aircraft rotables at a lower
rate than was in place during the same period of 1997. The decrease in lease
revenues was partially offset by lower direct expenses due to the
double-declining balance method of depreciation.
Marine vessel: The Partnership's share of revenues and expenses from the
interest in an entity owning a marine vessel was $0.3 million and $0.4 million,
respectively, for the quarter ended March 31, 1998, compared to $0.3 million and
$0.4 million, respectively, for the same period in 1997. The decrease in
contribution was due to lower lease rates earned during the three months ended
March 31, 1998, when compared to the same period of 1997.
(E) Net Income (Loss)
As a result of the foregoing, the Partnership's net income of $0.1 million in
the first quarter of 1998 compared to a net loss of $1.1 million in the first
quarter of 1997. The Partnership's ability to operate or liquidate assets;
secure leases; and re-lease those assets for which leases expire during the life
of the Partnership is subject to many factors. Therefore, the Partnership's
performance for the three months ended March 31, 1998 is not necessarily
indicative of future periods. In the first quarter of 1998, the Partnership
distributed $2.5 million to the limited partners, or $0.25 per weighted-average
depositary unit.
(II) FINANCIAL CONDITION - CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
For the three months ended March 31, 1998, the Partnership generated sufficient
operating cash (net cash provided by operating activities, plus distributions
from USPEs) to meet its operating obligations and maintain the current level of
distributions (total for three months ended March 31, 1998 of approximately $2.6
million) to the partners.
During the three months ended March 31, 1998, the Partnership sold or disposed
of marine containers, trailers, and a railcar, with an aggregate net book value
of $0.3 million, for proceeds of $0.3 million.
The Partnership purchased its initial equipment portfolio with capital raised
from its initial equity offering and permanent debt financing. No further
capital contributions from original partners are permitted under the terms of
the Partnership's limited partnership agreement. In addition, the Partnership,
under its current loan agreement, does not have the capacity to incur additional
debt. Therefore, the Partnership relies on operating cash flow to meet its
operating obligations, maintain working capital reserves, and make cash
distributions to the limited partners.
(III) YEAR 2000 COMPLIANCE
The General Partner is currently addressing the year 2000 computer software
issue and 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, with earlier application permitted. 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 is in its holding or passive liquidation phase through
December 31, 1998, the General Partner will be 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. The General Partner anticipates that the liquidation of Partnership assets
will be completed by the scheduled termination of the Partnership at the end of
the year 2000.
The Partnership intends to use cash flow from operations to satisfy its
operating requirements, pay loan principal on debt, maintain working capital
reserves, and pay cash distributions to the investors.
(VI) FORWARD-LOOKING INFORMATION
Except for the 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.
(This space intentionally left blank)
<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 III
PARTNERSHIP
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> 4,230
<SECURITIES> 0
<RECEIVABLES> 2,667
<ALLOWANCES> (1,950)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 104,563
<DEPRECIATION> (69,081)
<TOTAL-ASSETS> 48,183
<CURRENT-LIABILITIES> 0
<BONDS> 29,290
0
0
<COMMON> 0
<OTHER-SE> 17,042
<TOTAL-LIABILITY-AND-EQUITY> 48,183
<SALES> 0
<TOTAL-REVENUES> 4,331
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,590
<LOSS-PROVISION> 127
<INTEREST-EXPENSE> 529
<INCOME-PRETAX> 80
<INCOME-TAX> 0
<INCOME-CONTINUING> 80
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
