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
June 30, 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>
June 30, December 31,
1998 1997
------------------------------
<S> <C> <C>
Assets
Equipment held for operating lease, at cost $ 98,525 $ 105,308
Less accumulated depreciation (70,303 ) (67,234 )
---------------------------------------
Net equipment 28,222 38,074
Cash and cash equivalents 2,470 4,239
Accounts receivable, net of allowance for doubtful
accounts of $1,442 in 1998 and $1,837 in 1997 1,568 1,316
Due from affiliates 1,556 --
Investments in unconsolidated special-purpose entities 5,408 9,179
Prepaid expenses and other assets 24 71
Deferred charges, net of accumulated amortization of
$340 in 1998 and $348 in 1997 193 307
---------------------------------------
Total assets $ 39,441 $ 53,186
=======================================
Liabilities and partners' capital
Liabilities:
Accounts payable and accrued expenses $ 1,114 $ 1,294
Due to affiliates 139 2,208
Lessee deposits and reserves for repairs 1,042 835
Note payable 18,540 29,290
---------------------------------------
Total liabilities 20,835 33,627
---------------------------------------
Partners' capital:
Limited partners (9,871,073 depositary units as
of June 30, 1998 and December 31, 1997) 18,606 19,559
General Partner -- --
---------------------------------------
Total partners' capital 18,606 19,559
---------------------------------------
Total liabilities and partners' capital $ 39,441 $ 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 For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Lease revenue $ 4,275 $ 5,233 $ 8,557 $ 10,224
Interest and other income 56 93 114 188
Net gain on disposition of equipment 3,734 35 3,725 124
-------------------------------------------------------------------
Total revenues 8,065 5,361 12,396 10,536
-------------------------------------------------------------------
Expenses
Depreciation and amortization 2,411 3,544 4,807 7,100
Management fees to affiliate 265 302 507 594
Repairs and maintenance 731 870 1,301 2,285
Equipment operating expense (12 ) 14 28 20
Interest expense 514 807 1,043 1,604
Insurance expense to affiliate (42 ) -- (42) --
Other insurance expense 125 66 208 112
General and administrative expenses to affiliates 144 171 299 353
Other general and administrative expenses 214 236 318 381
Recovery of bad debts (491 ) (20) (364) (46)
-------------------------------------------------------------------
Total expenses 3,859 5,990 8,105 12,403
-------------------------------------------------------------------
Equity in net income (loss) of unconsolidated
special-purpose entities (35 ) 157 (40) 342
-------------------------------------------------------------------
Net income (loss) $ 4,171 $ (472) $ 4,251 $ (1,525)
===================================================================
Partners' share of net income (loss)
Limited partners $ 4,041 $ (602) $ 3,991 $ (1,785)
General Partner 130 130 260 260
-------------------------------------------------------------------
Total $ 4,171 $ (472) $ 4,251 $ (1,525)
===================================================================
Net income (loss) per weighted-average depositary
unit (9,871,073 units as of June 30, 1998 and 1997) $ 0.41 $ (0.06) $ 0.40 $ (0.18)
===================================================================
Cash distributions $ 2,607 $ 2,598 $ 5,204 $ 5,195
===================================================================
Cash distributions per weighted-average
depositary unit $ 0.25 $ 0.25 $ 0.50 $ 0.50
===================================================================
</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 June 30, 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 distributions (9,871) (520) (10,391)
-----------------------------------------------------
Partners' capital as of December 31, 1997 19,559 -- 19,559
Net income 3,991 260 4,251
Cash distributions (4,944) (260) (5,204)
-----------------------------------------------------
Partners' capital as of June 30, 1998 $ 18,606 $ -- $ 18,606
=====================================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
(thousands of dollars)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1998 1997
----------------------------
<S> <C> <C>
Operating activities
Net income (loss) $ 4,251 $ (1,525 )
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 4,807 7,100
Net gain on disposition of equipment (3,725) (124 )
Equity in net (income) loss from unconsolidated special-purpose entities 40 (342 )
Changes in operating assets and liabilities:
Restricted cash and marketable securities -- (153 )
Accounts and note receivable, net (184) 236
Prepaid expenses and other assets 47 41
Accounts payable and accrued expenses (180) (592 )
Due to affiliates (2,069) (441 )
Lessee deposits and reserves for repairs 207 (148 )
--------------------------------
Net cash provided by operating activities 3,194 4,052
--------------------------------
Investing activities
Payments for capitalized improvements (34) (137 )
Equipment purchased and placed in unconsolidated special-purpose entity (1,198) --
Distributions from unconsolidated special-purpose entities 2,318 1,835
Proceeds from disposition of equipment 11,461 725
--------------------------------
Net cash provided by investing activities 12,547 2,423
--------------------------------
Financing activities
Due from affiliates (1,556) --
Principal payments on note payable (10,750) (461 )
Cash distributions paid to limited partners (4,944) (4,935 )
Cash distributions paid to General Partner (260) (260 )
--------------------------------
Net cash used in financing activities (17,510) (5,656 )
--------------------------------
Net increase (decrease) in cash and cash equivalents (1,769) 819
Cash and cash equivalents at beginning of period 4,239 1,414
--------------------------------
Cash and cash equivalents at end of period $ 2,470 $ 2,233
================================
Supplemental information
Interest paid $ 1,049 $ 1,772
================================================================================
Sale proceeds in accounts receivable $ 74 $ --
================================================================================
Noncash transfer of equipment at net book value from
unconsolidated special-purpose entity $ 2,611 $ --
================================================================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
1. Opinion of Management
In the opinion of the management of PLM Financial Services, Inc. (FSI or the
General Partner), the accompanying unaudited financial statements contain all
adjustments necessary, consisting primarily of normal recurring accruals, to
present fairly the financial position of PLM Equipment Growth Fund III (the
Partnership) as of June 30, 1998 and December 31, 1997, the statements of
operations for the three months and six months ended June 30, 1998 and 1997, the
statements of changes in partners' capital from December 31, 1996 to June 30,
1998, and the statements of cash flows for the six months ended June 30, 1998
and 1997. Certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted from the accompanying financial
statements. For further information, reference should be made to the financial
statements and notes thereto included in the Partnership's Annual Report on Form
10-K for the year ended December 31, 1997, on file at the Securities and
Exchange Commission.
2. Cash Distributions
Cash distributions are recorded when paid and totaled $2.6 million and $5.2
million for the three and six months ended June 30, 1998 and 1997, respectively.
Cash distributions to unitholders in excess of net income are considered to
represent a return of capital. Cash distributions to unitholders of $1.0 million
and $4.9 million during the six months ended June 30, 1998 and 1997,
respectively, were deemed to be a return of capital. Cash distributions related
to the results from the second quarter of 1998, of $2.6 million, were paid
during the third quarter of 1998.
3. Transactions with General Partner and Affiliates
The Partnership's proportional share of the affiliated expenses incurred by the
unconsolidated special-purpose entities (USPEs) during 1998 and 1997, are listed
in the following table (in thousands of dollars):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees $ 33 $ 46 $ 60 $ 88
Data processing and administrative
expenses 12 12 26 24
Insurance expense 10 25 12 52
</TABLE>
The Partnership's proportional share of USPE-affiliated management fees, of
$19,000 and $0.1 million, were payable as of June 30, 1998 and December 31,
1997, respectively.
Transportation Equipment Indemnity Company, Ltd. (TEI), an affiliate of the
General Partner, provided certain marine insurance coverage for the
Partnership's equipment and other insurance brokerage services during 1998 and
1997. TEI did not provide the same insurance coverage during 1998 as had been
provided during 1997. These services were provided by an unaffiliated third
party.
During 1998, the Partnership received a $46,000 loss-of-hire insurance refund
from TEI due to lower claims from the insured Partnership and other insured
affiliated partnerships.
The balance due to affiliates as of June 30, 1998 was $0.1 million due to FSI
and its affiliate for management fees. The balance due to affiliates as of
December 31, 1997 includes $0.4 million due to FSI and its affiliate for
management fees and $1.8 million due to affiliated USPEs.
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
4. Equipment
Owned equipment held for operating lease is stated at cost. The components of
owned equipment held for operating leases are as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-----------------------------------
<S> <C> <C>
Aircraft $ 51,974 $ 46,282
Rail equipment 34,423 34,859
Marine containers 6,370 7,421
Trailers 5,758 7,080
Mobile offshore drilling unit -- 9,666
98,525 105,308
Less accumulated depreciation (70,303) (67,234 )
---------------------------------------
Net equipment $ 28,222 $ 38,074
=======================================
</TABLE>
As of June 30, 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 69 rail equipment and 25 marine containers with an aggregate
net book value of $0.4 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
rail equipment with an aggregate carrying value of $0.3 million.
In the fourth quarter of 1996, the Partnership ended its reinvestment phase in
accordance with the limited partnership agreement; therefore, no equipment was
purchased during the six months ended June 30, 1998 and 1997. Capital
improvements to the Partnership's equipment of $34,000 and $0.1 million were
made during the six months ended June 30, 1998 and June 30, 1997, respectively.
During the six months ended June 30, 1998, the Partnership sold or disposed of
marine containers, trailers, rail equipment, and a mobile offshore drilling
unit, with an aggregate net book value of $7.8 million, for aggregate proceeds
of $11.5 million. During the six months ended June 30, 1997, the Partnership
sold or disposed of marine containers, trailers, and rail equipment, with an
aggregate net book value of $0.6 million, for aggregate proceeds of $0.7
million.
During the six months ended June 30, 1998, a commercial aircraft which was in a
trust the Partnership had a 25% interest in was transferred out of the trust
into the Partnership's owned equipment portfolio (see Note 5).
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
5. Investments in Unconsolidated Special-Purpose Entities
The net investment in unconsolidated special-purpose entities included the
following jointly-owned equipment (and related assets and liabilities) (in
thousands of dollars):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------------------------------
<S> <C> <C>
56% interest in an entity owning a marine vessel $ 3,050 $ 3,104
17% interest in two trusts that own three commercial aircraft, two
aircraft engines, and a portfolio of rotable components 2,298 4,021
25% interest in a trust that owned four commercial aircraft 60 2,054
-------------------------------------
Net investments $ 5,408 $ 9,179
=====================================
</TABLE>
During the six months ended June 30, 1998, the Partnership increased its
investment in a trust owning four commercial aircraft by funding the
installation of a hushkit on an aircraft assigned to the Partnership in the
trust for $1.2 million that was paid to FSI. In this Trust, all of the
commercial aircraft except the commercial aircraft designated to the Partnership
were sold by the affiliated programs. This aircraft was transferred out of the
Trust into the Partnership's owned equipment portfolio (see Note 4).
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(I) RESULTS OF OPERATIONS
Comparison of Equipment Growth Fund III's (the Partnership's) Operating Results
for the Three Months Ended June 30, 1998 and 1997
(A) Owned Equipment Operations
Lease revenues less direct expenses (repairs and maintenance, equipment
operating expenses, and asset-specific insurance expenses) on owned equipment
decreased for the quarter ended June 30, 1998, 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 June 30,
1998 1997
----------------------------------------
<S> <C> <C>
Aircraft $ 1,717 $ 1,852
Rail equipment 1,157 1,277
Mobile offshore drilling unit 342 396
Trailers 245 526
Marine containers 48 269
Marine vessel (22) --
</TABLE>
Aircraft: Aircraft lease revenues and direct expenses were $1.7 million and
$18,000, respectively, for the quarter ended June 30, 1998, compared to $2.0
million and $0.1 million, respectively, during the same period of 1997. Lease
revenues decreased $0.3 million during the three months ended June 30, 1998,
when compared to the same period in 1997 due to the sale of a total of two
aircraft during the third and fourth quarters of 1997. During the three months
ended June 30, 1997, the Partnership incurred $0.1 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: Rail equipment lease revenues and direct expenses were $1.8
million and $0.6 million, respectively, for the quarter ended June 30, 1998,
compared to $1.9 million and $0.6 million, respectively, during the same period
of 1997. The decrease in rail equipment contribution was due to lower revenues
resulting from the disposition of rail equipment in 1998 and 1997, and more rail
equipment being off lease in the second quarter of 1998, compared to the same
period of 1997.
Mobile offshore drilling unit: Mobile offshore drilling unit lease revenues and
direct expenses were $0.4 million and $9,000, respectively, for the quarter
ended June 30, 1998, compared to $0.4 million and $14,000, respectively, for the
quarter ended June 30, 1997. The Partnership sold its mobile offshore drilling
unit in June of 1998 with a gain of $3.6 million.
Trailers: Trailer lease revenues and direct expenses were $0.3 million and $0.1
million, respectively, for the quarter ended June 30, 1998, compared to $0.6
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
$50,000 and $2,000, respectively, for the quarter ended June 30, 1998, compared
to $0.3 million and $2,000, 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 and a decrease in
utilization has been a decrease in marine container contribution.
Marine vessel: Marine vessel lease revenues and direct expenses were zero and
$22,000, respectively, for the quarter ended June 30, 1998, compared to zero
revenues and direct expenses during the same period of 1997. All the
Partnership's marine vessels were sold during 1996.
<PAGE>
(B) Indirect Operating Expenses Related to Owned Equipment Operations
Total indirect expenses of $3.1 million for the quarter ended June 30, 1998
decreased from $5.1 million for the same period of 1997. Significant variances
are explained as follows:
(1) A decrease of $1.1 million in depreciation and amortization expenses
from 1997 levels reflects the sale or disposition of certain Partnership assets
during 1998 and 1997 and by the Partnership's use of the double-declining
balance method of depreciation which results in greater depreciation in the
first years an asset is owned.
(2) A decrease of $0.5 million in bad debt expense was due to the
collection in outstanding receivables from certain lessees that were previously
reserved for as bad debts.
(3) A decrease of $0.3 million in interest expense was due to a lower
average debt outstanding during the three months ended June 30, 1998, compared
to the same quarter in 1997.
(C) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of owned equipment for the second quarter of
1998 was $3.7 million, resulting from the disposition of marine containers,
trailers, rail equipment, and a mobile offshore drilling unit with an aggregate
net book value of $7.6 million, for aggregate proceeds of $11.3 million. In the
second quarter of 1997, the net gain of $35,000 resulted from the disposition of
marine containers, trailers, and rail equipment, 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):
<TABLE>
<CAPTION>
For the Three Months
Ended June 30,
1998 1997
---------------------------------------
<S> <C> <C>
Aircraft, aircraft engines, and rotables $ (30) $ 215
Marine vessels (5) (58)
---------------------------------------
Equity in net income (loss) of USPEs $ (35) $ 157
=======================================
</TABLE>
Aircraft, aircraft engines, and rotables: As of June 30, 1998 and 1997, the
Partnership had an interest in two trusts that own three commercial aircraft,
two aircraft engines, and a portfolio of aircraft rotables. As of June 30, 1997,
the Partnership also had an interest in a trust that owned six commercial
aircraft. The Partnership's share of aircraft revenues and expenses was $0.4
million and $0.4 million, respectively, for the quarter ended June 30, 1998,
compared to $0.7 million and $0.5 million, respectively, during the same period
of 1997. 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 which results in greater
depreciation in the first years an asset is owned.
Marine vessels: As of June 30, 1998 and 1997, the Partnership had an interest in
an entity that owns a marine vessel. The Partnership's share of revenues and
expenses of marine vessels was $0.4 million and $0.4 million, respectively, for
the quarter ended June 30, 1998, compared to $0.3 million and $0.4 million,
respectively, for the same period of 1997. The increase in lease revenues was
due to higher lease rates for the three months ended June 30, 1998, when
compared to the same quarter in 1997.
(E) Net Income (Loss)
As a result of the foregoing, the Partnership had a net income of $4.2 million
in the second quarter of 1998 compared to a net loss of $0.5 million in the
second quarter of 1997. The Partnership's ability to operate, or liquidate
assets, secure leases, and re-lease those assets whose leases expire is subject
to many factors. Therefore, the Partnership's performance for the three months
ended June 30, 1998 is not necessarily indicative of future periods. In the
second quarter of 1998, the Partnership distributed $2.5 million to the limited
partners, or $0.25 per weighted-average depositary unit.
Comparison of the Partnership's Operating Results for the Six Months Ended June
30, 1998 and 1997
(A) Owned Equipment Operations
Lease revenues less direct expenses (repairs and maintenance, equipment
operating expenses, and asset-specific insurance expenses) on owned equipment
decreased for the six months ended 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 Six Months
Ended June 30,
1998 1997
---------------------------------------
<S> <C> <C>
Aircraft $ 3,274 $ 2,756
Rail equipment 2,468 2,810
Mobile offshore drilling unit 737 794
Trailers 510 927
Marine containers 164 571
Marine vessels (63) (5)
</TABLE>
Aircraft: Aircraft lease revenues and direct expenses were $3.4 million and $0.1
million, respectively, for the six months ended June 30, 1998, compared to $4.0
million and $1.2 million, respectively, during the same period of 1997. Lease
revenues decreased $0.6 million during the six months ended June 30, 1998, when
compared to the same period in 1997 due to the sale of a total of two aircraft
during the third and fourth quarters of 1997. During the six months ended June
30, 1997, the Partnership incurred $1.2 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: Rail equipment lease revenues and direct expenses were $3.7
million and $1.2 million, respectively, for the six months ended 1998, compared
to $3.8 million and $1.0 million, respectively, during the same period of 1997.
The increase in direct expenses resulted from running repairs required on
certain rail equipment in the fleet during the first six months of 1998 that
were not needed during the first six months of 1997. Additionally, there was a
decrease in lease revenues due to the disposition of rail equipment during 1998
and 1997 and more rail equipment being off lease during the first six months of
1998 when compared to the first six months of 1997.
Mobile offshore drilling unit: Mobile offshore drilling unit lease revenues and
direct expenses were $0.8 million and $19,000, respectively, for the six months
ended June 30, 1998, compared to $0.8 million and $20,000, respectively, for the
six months ended June 30, 1997. The decrease in mobile offshore drilling unit
contribution was due to the sale of the Partnership's mobile offshore drilling
unit on June 1998.
Trailers: Trailer lease revenues and direct expenses were $0.6 million and $0.1
million, respectively, for the six months ended June 30, 1998, compared to $1.0
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 $0.2
million and $3,000, respectively, for the six months ended June 30, 1998,
compared to $0.6 million and $5,000, 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 net contribution.
Marine vessel: Marine vessel lease revenues and direct expenses were zero and
$0.1 million for the six months ended June 30, 1998, compared to zero and
$5,000, respectively, during the same period of 1997. All the Partnership's
marine vessels were sold during 1996. The direct expense of $0.1 million for the
six months ended June 30, 1998 was due to additional supplemental liability
insurance charged to the Partnership for sold vessels by the former insurance
company. This expense was partially offset by loss of hire insurance refund
received during the second quarter of 1998 from Transportation Equipment
Indemnity Company, Ltd. (TEI), an affiliate of the General Partner, due to lower
claims from the insured Partnership and other insured affiliated partnerships.
(B) Indirect Operating Expenses Related to Owned Equipment Operations
Total indirect expenses of $6.6 million for the six months ended June 30, 1998
decreased from $10.0 million for the same period of 1997. Significant variance
is explained as follows:
(1) A decrease in depreciation and amortization expenses of $2.3 million
from 1997 levels reflects the sale or disposition of certain Partnership assets
during 1998 and 1997 and the double-declining balance method of depreciation
which results in greater depreciation in the first years an asset is owned.
(2) A decrease of $0.6 million in interest expense was due to lower average
debt outstanding during the six months ended June 30, 1998 when compared to the
same period of 1997.
(3) A decrease of $0.3 million in bad debt expense was due to the
collection in outstanding receivables from certain lessees that were previously
reserved for as bad debts.
(4) A decrease of $0.1 million in management fees to affiliate from 1997
levels was due to lower lease revenue in 1998, compared to the same period of
1997.
(C) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of equipment was $3.7 million for the six months
ended June 30, 1998, resulting from the disposition of marine containers,
trailers, rail equipment, and a mobile offshore drilling unit with an aggregate
net book value of $7.8 million, for aggregate proceeds of $11.5 million. For the
six months ended June 30, 1997, the net gain of $0.1 million resulted from the
disposition of marine containers, trailers, and rail equipment with an aggregate
net book value of $0.6 million, for aggregate proceeds of $0.7 million.
(D) Interest and Other Income
Interest and other income decreased by $0.1 million for the six months ended
June 30, 1998 compared to the same period of 1997 primarily due to lower cash
balances available for investment.
(E) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1998 1997
----------------------------------------
<S> <C> <C>
Aircraft, aircraft engines, and rotables $ 43 $ 431
Marine vessels (83) (89 )
Equity in net income (loss) $ (40) $ 342
===============================================================
</TABLE>
Aircraft, aircraft engines, and rotables: As of June 30, 1998 and 1997, the
Partnership had an interest in two trusts that own three commercial aircraft,
two aircraft engines, and a portfolio of aircraft rotables. As of June 30, 1997,
the Partnership also owned an interest in a trust that owns six commercial
aircraft. The Partnership's share of aircraft revenues and expenses was $0.8
million and $0.8 million, respectively, for the six months ended June 30, 1998,
compared to $1.4 million and $1.0 million, respectively, during the same period
of 1997. 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 which results in great
depreciation in the first years an asset is owned.
Marine vessels: As of June 30, 1998 and 1997, the Partnership had an interest in
an entity that owns a marine vessel. The Partnership's share of revenues and
expenses in marine vessels was $0.7 million and $0.8 million for the six months
ended June 30, 1998 and 1997.
(F) Net Income (Loss)
As a result of the foregoing, the Partnership had net income of $4.3 million for
the six months ended June 30, 1998, compared to a net loss of $1.5 million in
the same period of 1997. The Partnership's ability to operate, or liquidate
assets, secure leases, and re-lease those assets whose leases expire is subject
to many factors. Therefore, the Partnership's performance in the six months
ended June 30, 1998 is not necessarily indicative of future periods. The
Partnership distributed $4.9 million to the limited partners, or $0.50 per
weighted-average depositary unit in the six months ended June 30, 1998.
<PAGE>
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
For the six months ended June 30, 1998, the Partnership generated sufficient
operating cash of $5.5 million (net cash provided by operating activities, plus
non-liquidating distributions from unconsolidated special-purpose entities) to
meet its operating obligations and maintain the current level of distributions
(total for six months ended June 30, 1998 of approximately $5.2 million) to the
partners.
During the six months ended June 30, 1998, the General Partner sold equipment on
behalf of the Partnership and realized proceeds of $11.5 million.
During the first six months of 1998, the Partnership paid down $10.8 million of
the outstanding note balance as a result of asset sales.
(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.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an entity
recognize those items as assets or liabilities in the statement of financial
position and measure them at fair value. This statement is effective for all
quarters of fiscal years beginning after June 15, 1999. As of June 30, 1998, the
General Partner is reviewing the effect this standard will have on the
Partnership's financial statements.
(V) OUTLOOK FOR THE FUTURE
Since the Partnership 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.
<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
By: PLM Financial Services, Inc.
General Partner
Date: August 11, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,470
<SECURITIES> 0
<RECEIVABLES> 3,010
<ALLOWANCES> (1,442)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 98,525
<DEPRECIATION> (70,303)
<TOTAL-ASSETS> 39,441
<CURRENT-LIABILITIES> 0
<BONDS> 18,540
0
0
<COMMON> 0
<OTHER-SE> 20,835
<TOTAL-LIABILITY-AND-EQUITY> 39,441
<SALES> 0
<TOTAL-REVENUES> 12,396
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,426
<LOSS-PROVISION> (364)
<INTEREST-EXPENSE> 1,043
<INCOME-PRETAX> 4,251
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,251
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,251
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
