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 SEPTEMBER 30, 1999
[ ] 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>
September 30, December 31,
1999 1998
------------------------------------
ASSETS
<S> <C> <C>
Equipment held for operating lease, at cost $ 85,547 $ 96,890
Less accumulated depreciation (68,736) (73,580)
------------------------------------
16,811 23,310
Equipment held for sale 1,077 --
-------------------------------------------------------------------------------------------------------------------------
Net equipment 17,888 23,310
Cash and cash equivalents 536 3,429
Accounts receivable, net of allowance for doubtful
accounts of $1,853 in 1999 and $1,469 in 1998 687 1,164
Investments in unconsolidated special-purpose entities 2,598 4,974
Deferred charges, net of accumulated
amortization of $490 in 1999 and $403 in 1998 55 141
Prepaid expenses and other assets 1 50
------------------------------------
Total assets $ 21,765 $ 33,068
====================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 616 $ 1,234
Due to affiliates 745 155
Lessee deposits and reserves for repairs 1,278 1,057
Note payable 11,068 18,540
------------------------------------
Total liabilities 13,707 20,986
------------------------------------
Partners' capital:
Limited partners (9,871,073 depositary units as
of September 30, 1999 and December 31, 1998) 8,058 12,082
General Partner -- --
------------------------------------
Total partners' capital 8,058 12,082
------------------------------------
Total liabilities and partners' capital $ 21,765 $ 33,068
====================================
</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 Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
-------------------------- ------------------------
REVENUES
<S> <C> <C> <C> <C>
Lease revenue $ 3,305 $ 3,729 $ 10,187 $ 12,286
Interest and other income 35 34 149 148
Net gain on disposition of equipment 12 2 478 3,727
----------------------------------------------------------------
Total revenues 3,352 3,765 10,814 16,161
----------------------------------------------------------------
EXPENSES
Depreciation and amortization 1,767 2,322 5,326 7,129
Repairs and maintenance 623 524 1,695 1,853
Interest expense 252 340 813 1,383
Other insurance expense 33 45 94 211
Management fees to affiliate 166 216 552 723
General and administrative expenses to affiliates 124 128 361 427
Other general and administrative expenses 194 171 825 489
Provision for bad debts 407 383 385 19
-----------------------------------------------------------------
Total expenses 3,566 4,129 10,051 12,234
-----------------------------------------------------------------
Equity in net income (loss) of unconsolidated
special-purpose entities (2) 119 1,448 79
-----------------------------------------------------------------
Net income (loss) $ (216) $ (245) $ 2,211 $ 4,006
==================================================================
PARTNERS' SHARE OF NET INCOME (LOSS)
Limited partners $ (320) $ (375) $ 1,899 $ 3,616
General Partner 104 130 312 390
------------------------------------------------------------------
Total $ (216) $ (245) $ 2,211 $ 4,006
==================================================================
Net income (loss) per weighted-average depositary unit $ (0.03) $ (0.04) $ 0.19 $ 0.37
==================================================================
Cash distribution $ 2,078 $ 2,598 $ 6,235 $ 7,802
==================================================================
depositary unit $ 0.20 $ 0.25 $ 0.60 $ 0.75
==================================================================
</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, 1997 to September 30, 1999
(in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
------------------------------------------------
<S> <C> <C> <C>
Partners' capital as of December 31, 1997 $ 19,559 $ -- $ 19,559
Net income 2,397 520 2,917
Cash distribution (9,874) (520) (10,394)
-------------------------------------------------
Partners' capital as of December 31, 1998 12,082 -- 12,082
Net income 1,899 312 2,211
Cash distribution (5,923) (312) (6,235)
-------------------------------------------------
Partners' capital as of September 30, 1999 $ 8,058 $ -- $ 8,058
=================================================
</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 Nine Months
Ended September 30,
1999 1998
-----------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 2,211 $ 4,006
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 5,326 7,129
Net gain on disposition of equipment (478) (3,727)
Equity in net income from unconsolidated special-purpose entities (1,448) (79)
Accounts receivable, net 456 398
Prepaid expenses and other assets 49 69
Accounts payable and accrued expenses (618) (573)
Due to affiliates (10) (2,052)
Lessee deposits and reserves for repairs 221 212
----------------------------
Net cash provided by operating activities 5,709 5,383
----------------------------
Investing activities
Payments for capitalized improvements (19) (54)
Payments for capitalized improvements in unconsolidated special-purpose entity -- (1,198)
Distributions from unconsolidated special-purpose entities 276 --
Distributions from liquidation of unconsolidated special-purpose entity 3,548 2,573
Proceeds from disposition of equipment 700 11,625
----------------------------
Net cash provided by investing activities 4,505 12,946
----------------------------
FINANCING ACTIVITIES
Loan from affiliate 600 --
Principal payments on note payable (7,472) (10,750)
Cash distributions paid to limited partners (5,923) (7,412)
Cash distributions paid to General Partner (312) (390)
----------------------------
Net cash used in financing activities (13,107) (18,552)
----------------------------
Net decrease in cash and cash equivalents (2,893) (223)
Cash and cash equivalents at beginning of period 3,429 4,239
----------------------------
Cash and cash equivalents at end of period $ 536 $ 4,016
============================
SUPPLEMENTAL INFORMATION
Interest paid $ 813 $ 1,389
=============================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(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. (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 September 30, 1999 and December 31, 1998,
the statements of operations for the three and nine months ended September
30, 1999 and 1998, the statements of changes in partners' capital for the
period 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
In accordance with the limited partnership agreement, the Partnership
entered its passive liquidation phase on January 1, 1997 and as a result,
the Partnership is not permitted to reinvest in equipment. On January 1,
2000, the Partnership will enter the liquidation phase and commence an
orderly liquidation of the Partnership assets. The Partnership will
terminate on December 31, 2000, unless terminated earlier upon sale of all
equipment or by certain other events.
Beginning in the Partnership's eighth year of operations, which commenced
on January 1, 1997, the General Partner stopped reinvesting excess cash, if
any, which, less reasonable reserves, will be distributed to partners.
During the liquidation phase, the Partnership's assets will continue to be
recorded at the lower of 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
three months ended September 30, 1999 and 1998, cash distributions totaled
$2.1 million and $2.6 million, respectively. For the nine months ended
September 30, 1999 and 1998, cash distributions totaled $6.2 million and
$7.8 million, respectively. Cash distributions to the limited partners of
$4.0 million and $3.8 million for the nine months ended September 30, 1999
and 1998, respectively, were deemed to be a return of capital.
Cash distributions related to the results from the third quarter of 1999,
of $1.6 million, will be paid during November 1999.
4. Transactions with General Partner and Affiliates
The balance due to affiliates as of September 30, 1999 included $0.1
million due to FSI and its affiliate for management fees, and $0.6 million
due to PLM International, Inc. On September 30, 1999, PLM International,
Inc. loaned the Partnership $0.6 million. The Partnership's senior debt
prohibits the Partnership from incurring additional indebtedness. The
Partnership has received a waiver from the bank, which allows this loan.
The waiver requires that the Partnership may not repay PLM International,
Inc.
until the Partnership makes the December 31, 1999 senior debt payment.
The balance due to affiliates as of December 31, 1998 included $0.2 million
due to FSI and its affiliate for management fees.
The Partnership's proportional share of USPE-affiliated management fees, of
$17,000 and $10,000, were payable as of September 30, 1999 and December 31,
1998, respectively.
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(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 unconsolidated special-purpose entities 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 $ 15 $ 30 $ 41 $ 91
Data processing and administrative
expenses 3 8 12 35
Insurance expense -- 3 6 16
</TABLE>
5. Equipment
Owned equipment held for operating lease is stated at cost. Equipment held
for sale is stated at the lower of the equipment's depreciated cost or fair
value, less cost to sell, and is subject to a pending contract for sale.
The components of equipment were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------------------------------
<S> <C> <C>
Aircraft $ 42,000 $ 52,028
Railcars 33,565 33,999
Trailers 5,155 5,257
Marine containers 4,827 5,606
--------------------------------------
85,547 96,890
Less accumulated depreciation (68,736) (73,580)
--------------------------------------
16,811 23,310
Equipment held for sale 1,077 --
-------------------------------------
Net equipment $ 17,888 $ 23,310
=====================================
</TABLE>
As of September 30, 1999, all equipment in the Partnership portfolio was
either on lease or operating in PLM-affiliated short-term trailer rental
facilities, except for 62 railcars and an aircraft. As of December 31,
1998, all equipment in the Partnership portfolio was either on lease or
operating in PLM-affiliated short-term rental facilities, except for 69
railcars, 25 marine containers, and an aircraft. The net book value of the
equipment off lease was $1.7 million and $2.4 million as of September 30,
1999 and December 31, 1998, respectively.
Capital improvements to the Partnership's equipment of $19,000 and $54,000
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, trailers, and railcars, with an aggregate
net book value of $0.2 million, for aggregate proceeds of $0.7 million.
During the nine months ended September 30, 1998, the Partnership sold or
disposed of marine containers, trailers, railcars, and a mobile offshore
drilling unit, with an aggregate net book value of $8.0 million, for
aggregate proceeds of $11.7 million.
As of September 30, 1999, a DC-9 aircraft was classified as equipment held
for sale.
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
6. Investments in Unconsolidated Special-Purpose Entities
The net investment in USPEs included 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>
56% interest in an entity owning a marine vessel $ 2,529 $ 2,814
25% interest in a trust that owned four commercial aircraft 69 106
17% interest in two trusts that owned a total of three commercial aircraft,
two aircraft engines, and a portfolio of rotable components -- 2,054
---------------------------------
Net investments $ 2,598 $ 4,974
=================================
</TABLE>
The Partnership sold its 17% interest in the two trusts that owned a total
of three commercial aircraft, two aircraft engines, and a portfolio of
rotable components during the first quarter of 1999 for proceeds of $3.5
million and had a gain of $1.6 million.
As of September 30, 1999 and December 31, 1998, all jointly-owned equipment
in the Partnership's USPE portfolio was on lease.
The General Partner has amended the corporate-by-laws of all investments in
USPE's in which the Partnership or any affiliated program owns an interest
that is greater than 50%. The amendment to the by-laws provide that all
decisions regarding the acquisition and disposition of the investment as
well as other significant business decisions of that investment would be
permitted only upon unanimous consent of the Partnership and all the
affiliated programs that have an ownership in the investment regardless of
the percentage of ownership.
(this space is intentionally left blank)
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
7. Operating Segments
The Partnership operates or operated primarily in five primary segments:
aircraft leasing, railcar leasing, trailer leasing, marine container
leasing, and mobile offshore drilling unit (MODU) 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
Aircraft Railcar Trailer Container All
For the quarter ended September 30, Leasing Leasing Leasing Leasing Other<F1>1 Total
1999
REVENUES
<S> <C> <C> <C> <C> <C> <C>
Lease revenue $ 1,399 $ 1,691 $ 192 $ 23 $ -- $ 3,305
Interest income and other 4 -- -- -- 31 35
Net gain (loss) on disposition of
equipment -- 13 (1) -- -- 12
-------------------------------------------------------------
Total revenues 1,403 1,704 191 23 31 3,352
COSTS AND EXPENSES
Operations support 82 506 57 2 9 656
Depreciation and amortization 1,194 441 89 28 15 1,767
Interest expense -- -- -- -- 252 252
Management fees 37 116 11 2 -- 166
General and administrative expenses 56 72 35 (1) 156 318
Provision for bad debts 378 19 10 -- -- 407
-------------------------------------------------------------
Total costs and expenses 1,747 1,154 202 31 432 3,566
-------------------------------------------------------------
Equity in net loss of USPEs -- -- -- -- (2) (2)
-------------------------------------------------------------
Net income (loss) $ (344) $ 550 $ (11) $ (8) $ (403) $ (216)
=============================================================
Total assets as of September 30, 1999 $ 9,424 $ 6,787 $ 2,023 $ 419 $ 3,112 $ 21,765
=============================================================
Marine
Aircraft Railcar Trailer Container All
For the quarter ended September 30, Leasing Leasing Leasing Leasing Other<F1>1 Total
1998
REVENUES
Lease revenue $ 1,614 $ 1,755 $ 310 $ 50 $ -- $ 3,729
Interest income and other 10 -- -- -- 24 34
Net gain (loss) on disposition of
equipment -- 1 (18) 19 -- 2
-------------------------------------------------------------
Total revenues 1,624 1,756 292 69 24 3,765
COSTS AND EXPENSES
Operations support 22 478 53 2 14 569
Depreciation and amortization 1,684 461 114 48 15 2,322
Interest expense -- -- -- -- 340 340
Management fees 68 126 19 3 -- 216
General and administrative expenses 20 62 33 1 183 299
Provision for (recovery of) bad 378 9 (4) -- -- 383
debts
-------------------------------------------------------------
Total costs and expenses 2,172 1,136 215 54 552 4,129
-------------------------------------------------------------
Equity in net income of USPEs 2 -- -- -- 117 119
-------------------------------------------------------------
Net income (loss) $ (546) $ 620 $ 77 $ 15 $ (411) $ (245)
=============================================================
Total assets as of September 30, 1998 $ 16,872 $ 8,610 $ 2,507 $ 870 $ 7,368 $ 36,227
==============================================================
<FN>
--------------------------
<F1> 1 Includes revenues and costs not identifiable to a particular segment
such as interest expense, certain amortization expenses, certain interest
income and other, operations support and general and administrative
expenses. Also includes income (loss) from an investment in an entity
owning a marine vessel.
</FN>
</TABLE>
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
7. Operating Segments (continued)
<TABLE>
<CAPTION>
Marine
Aircraft Railcar Trailer Container All
For the nine months ended September Leasing Leasing Leasing Leasing Other<F1> Total
30, 1999
REVENUES
<S> <C> <C> <C> <C> <C> <C>
Lease revenue $ 4,418 $ 5,160 $ 515 $ 94 $ -- $ 10,187
Interest income and other 14 -- -- -- 135 149
Net gain (loss) on disposition of
equipment 2 383 (7) 100 -- 478
-------------------------------------------------------------
Total revenues 4,434 5,543 508 194 135 10,814
COSTS AND EXPENSES
Operations support 292 1,315 151 2 29 1,789
Depreciation and amortization 3,599 1,326 266 90 45 5,326
Interest expense -- -- -- -- 813 813
Management fees 161 356 30 5 -- 552
General and administrative expenses 389 195 91 3 508 1,186
Provision for (recovery of) bad 358 48 (21) -- -- 385
debts
-------------------------------------------------------------
Total costs and expenses 4,799 3,240 517 100 1,395 10,051
-------------------------------------------------------------
Equity in net income (loss) of USPEs 1,477 -- -- -- (29) 1,448
------------------------------------------------------------
Net income (loss) $ 1,112 2,303 (9) 94 (1,289) 2,211
=============================================================
Total assets as of September 30, 1999 $ 9,424 $ 6,787 $ 2,023 $ 419 $ 3,112 $ 21,765
=============================================================
Marine
Aircraft Railcar Trailer Container MODU All
For the nine months ended September Leasing Leasing Leasing Leasing Leasing Other<F1>1 Total
30, 1998
REVENUES
Lease revenue $ 4,962 $ 5,411 $ 940 $ 217 $ 756 $ -- $ 12,286
Interest income and other 16 -- -- -- -- 132 148
Net gain (loss) on disposition of
equipment (14) 159 (88) 51 3,619 -- 3,727
------------------------------------------------------------------------
Total revenues 4,964 5,570 852 268 4,375 132 16,161
Costs and Expenses
Operations support 96 1,666 173 5 19 105 2,064
Depreciation and amortization 4,552 1,389 384 198 512 94 7,129
Interest expense -- -- -- -- -- 1,383 1,383
Management fees 238 377 59 11 38 -- 723
General and administrative expenses 80 202 131 4 -- 499 916
Provision for (recovery of) bad 20 (6) 5 -- -- -- 19
debts
------------------------------------------------------------------------
Total costs and expenses 4,986 3,628 752 218 569 2,081 12,234
------------------------------------------------------------------------
Equity in net income of USPEs 45 -- -- -- -- 34 79
------------------------------------------------------------------------
Net income (loss) $ 23 1,942 100 50 3,806 (1,915) 4,006
========================================================================
Total assets as of September 30, 1998 $ 16,872 $ 8,610 $ 2,507 $ 870 $ -- $ 7,368 $ 36,227
========================================================================
<FN>
- -------------------------
<F1>1 Includes revenues and costs not identifiable to a particular segment
such as interest expense, certain amortization expenses, certain interest
income and other, operations support and general and administrative
expenses. Also includes loss from an investment in an entity owning a
marine vessel.
</FN>
</TABLE>
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
8. Debt
During the first nine months of 1999, the Partnership repaid $7.5 million
of the outstanding note balance from the proceeds of asset sales. On
September 30, 1999, PLM International, Inc. loaned the Partnership $0.6
million. The loan proceeds were used to fund operations of the Partnership
and pay the principal and interest on the Partnership debt due September
30, 1999. The Partnership's senior debt prohibits the Partnership from
incurring additional indebtedness. The Partnership has received a waiver
from the bank, which allows this loan. The waiver requires that the
Partnership may not repay PLM International, Inc. until the Partnership
makes the December 31, 1999 senior debt payment.
9. 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 9,871,073.
10. 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
counter-claims 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.
The Partnership is involved as plaintiff or defendant in various other
legal actions incident to its business. Management does not believe that
any of these actions will be material to the financial condition of the
Partnership.
(this space is intentionally left blank)
<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 III'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 repairs and maintenance and
asset-specific insurance expenses) on owned equipment decreased during the three
months ended September 30, 1999 when 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 amortization 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 these expenses are indirect in nature, not a result of operations but
the result of owning a portfolio of equipment. The following table presents
lease revenues less direct expenses by segment (in thousands of dollars):
For the Three Months
Ended September 30,
1999 1998
------------------------------------
Aircraft $ 1,317 $ 1,592
Railcars 1,185 1,277
Trailers 135 257
Marine containers 21 48
Aircraft: Aircraft lease revenues and direct expenses were $1.4 million and $0.1
million, respectively, for the quarter ended September 30, 1999, compared to
$1.6 million and $22,000, respectively, during the same period of 1998. Lease
revenues decreased $0.2 million during the nine months ended September 30, 1999,
when compared to the same period in 1998. A $0.1 million decrease in lease
revenues was due to an aircraft being offlease during the third quarter of 1999
which was on lease during the third quarter of 1998 and the lease revenues of
this aircraft was $0.1 million for the third quarter of 1998. A $0.1 million
decrease in lease revenues was due to another aircraft that came offlease during
September of 1999 which was on lease during the third quarter of 1998. The lease
revenues from these two aircraft were $0.2 million for the quarter ended
September 30, 1999, compared to $0.4 million during the same period of 1998.
Railcars: Railcars lease revenues and direct expenses were $1.7 million and $0.5
million, respectively, for the quarter ended September 30, 1999, compared to
$1.8 million and $0.5 million, respectively, during the same period of 1998. The
decrease in railcar contribution in the third quarter of 1999 compared to the
same period of 1998 was due to the sale or disposition of railcars in 1998 and
1999.
Trailers: Trailer lease revenues and direct expenses were $0.2 million and $0.1
million, respectively, for the quarter ended September 30, 1999, compared to
$0.3 million and $0.1 million, respectively, during the same period of 1998. The
decreases in revenue is due primarily to a group of trailers coming off a fixed
term lease in the first quarter of 1999, and were off-lease during the third
quarter of 1999.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $2.9 million for the quarter ended September 30, 1999
decreased from $3.6 million for the same period of 1998. Significant variances
are explained as follows:
(i) A decrease of $0.6 million in depreciation and amortization expenses
from 1998 levels reflects 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.
<PAGE>
(ii)A decrease of $0.1 million in interest expense was due to a lower
average debt outstanding during the three months ended September 30,
1999, compared to the same period in 1998.
(C) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of owned equipment for the third quarter of 1999
was $12,000, resulting from the disposition of marine containers, railcars, and
trailers, with an aggregate net book value of $21,000, for aggregate proceeds of
$33,000. The net gain on the disposition of owned equipment for the third
quarter of 1998 was $2,000, which resulted from the disposition of marine
containers and trailers with an aggregate net book value of $0.1 million, for
aggregate proceeds of $0.1 million.
(D) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
(USPEs)
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, aircraft engines, and rotables $ -- $ 1
Marine vessel (2) 118
================================
Equity in net income (loss) of USPEs $ (2) $ 119
================================
Aircraft, aircraft engines, and rotables: As of September 30, 1998, the
Partnership's interest in two trusts that owned a total of three commercial
aircraft, two aircraft engines, and a portfolio of aircraft rotables. The
Partnership sold these two trusts during the first quarter of 1999. No revenue
or expenses were recorded during the quarter ended September 30, 1999, compared
to $0.2 million and $0.2 million, respectively, during the same period of 1998.
The decrease in revenues and expenses were due to the sale of the equipment in
the two trusts, which were sold in the first quarter of 1999.
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
revenues and expenses for the marine vessel was $0.3 million and $0.3 million,
respectively, for the quarter ended September 30, 1999, compared to $0.4 million
and $0.3 million, respectively, for the same period of 1998. The decrease in
revenues was due to lower lease rates in the third quarter of 1999 when compared
to the same quarter of 1988.
(E) Net Loss
As a result of the foregoing, the Partnership had a net loss of $0.2 million in
the third quarter of 1999 and 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. Therefore, the Partnership's performance in the
three months ended September 30, 1999 is not necessarily indicative of future
periods. In the third quarter of 1999, the Partnership distributed $2.0 million
to the limited partners, or $0.20 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 repairs and maintenance and
asset-specific insurance expenses) on owned equipment decreased during the nine
months ended September 30, 1999 when 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 amortization 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 these expenses are indirect in nature, not a result of operations but
the result of owning a portfolio of equipment. The following table presents
lease revenues less direct expenses by segment (in thousands of dollars):
For the Nine Months
Ended September 30,
1999 1998
---------------------------------
Aircraft $ 4,126 $ 4,866
Railcars 3,845 3,745
Trailers 364 767
Marine containers 92 212
Mobile offshore drilling unit -- 737
Marine vessel -- (63)
Aircraft: Aircraft lease revenues and direct expenses were $4.4 million and $0.3
million, respectively, for the nine months ended September 30, 1999, compared to
$5.0 million and $0.1 million, respectively, during the same period of 1998.
Lease revenues decreased $0.6 million during the nine months ended September 30,
1999, when compared to the same period in 1998. A $0.9 million decrease in lease
revenues was due to an aircraft being offlease during the first nine months of
1999 which was on lease during the first nine months of 1998 and the lease
revenues of this aircraft was $0.9 million for the nine months ended September
30, 1998. A $0.1 million decrease in lease revenues was due to another aircraft
that came offlease during September of 1999 which was on lease during the first
nine months of 1998. The decrease in lease revenue was partially offset by the
increase in lease revenue of $0.4 million from an aircraft that was transferred
into the Partnership's owned equipment portfolio from a trust during the second
quarter of 1998.
Railcars: Railcars lease revenues and direct expenses were $5.2 million and $1.3
million, respectively, for the nine months ended September 30, 1999, compared to
$5.4 million and $1.7 million, respectively, during the same period of 1998. The
decrease in lease revenues and expenses for the nine months ended September 30,
1999 compared to the same period of 1998 was due to the sale or disposition of
railcars in 1998 and 1999.
Trailers: Trailer lease revenues and direct expenses were $0.5 million and $0.2
million, respectively, for the nine months ended September 30, 1999, compared to
$0.9 million and $0.2 million, respectively, during the same period of 1998. A
decrease in revenue of $0.2 million was due to a group of trailers coming off a
fixed term lease in the first quarter of 1999, that remained off-lease during
the second and third quarters of 1999. A $0.2 million decrease in revenue was
due to sales and dispositions of trailers.
Marine containers: Marine container lease revenues and direct expenses were $0.1
million and $2,000, respectively, for the nine months ended September 30, 1999,
compared to $0.2 million and $5,000, respectively, during the same period of
1998. The decrease in lease revenues was caused by a worldwide increase in
available marine containers, which has lead to a decline in the lease rate.
Mobile offshore drilling unit: Mobile offshore drilling unit lease revenues and
direct expenses were $0.8 million and $19,000, respectively, for the nine months
ended September 30, 1998. The Partnership sold its mobile offshore drilling unit
in June of 1998.
<PAGE>
(B) Indirect Operating Expenses Related to Owned Equipment Operations
Total indirect expenses of $8.3 million for the nine months ended September 30,
1999 decreased from $10.2 million for the same period of 1998. Significant
variance is explained as follows:
(i) A decrease in depreciation and amortization expenses of $1.8 million
from 1998 levels reflects 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.
(ii) A decrease of $0.6 million in interest expense was due to lower average
debt outstanding during the nine months ended September 30, 1999 when
compared to the same period of 1998.
(iii) A decrease of $0.2 million in management fees to affiliate from 1998
levels was due to lower lease revenue during the nine months ended
September 30, 1999, compared to the same period of 1998.
(iv) An increase of $0.4 million in bad debt expense due to the General
Partner's evaluation of the collectability of receivables due from an
aircraft lessee.
(v) An increase of $0.3 million in general and administrative expenses
from 1998 levels was primarily due to increases in repositioning and
inspection costs to prepare an aircraft for re-lease.
(C) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of equipment was $0.5 million for the nine
months ended September 30, 1999, resulting from the disposition of marine
containers, trailers, and railcars with an aggregate net book value of $0.2
million, for aggregate proceeds of $0.7 million. For the nine months ended
September 30, 1998, the net gain of $3.7 million resulting from the disposition
of marine containers, trailers, railcars, and a mobile offshore drilling unit
with an aggregate net book value of $8.0 million, for aggregate proceeds of
$11.7 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 Nine Months
Ended September 30,
1999 1998
----------------------------
Aircraft, aircraft engines, and rotables $ 1,477 $ 45
Marine vessel (29) 34
----------------------------
Equity in net income $ 1,448 $ 79
============================
Aircraft, aircraft engines, and rotables: As of September 30, 1998, the
Partnership had an interest in two trusts that owned a total of three commercial
aircraft, two aircraft engines, and a portfolio of aircraft. The Partnership
sold these two trusts during the first quarter of 1999. As of September 30,
1998, the Partnership had an interest in a trust that owned four commercial
aircraft. The aircraft in this trust was transferred out of the trust into the
Partnership's owned equipment portfolio in the second quarter of 1998. The
Partnership's share of aircraft revenues and expenses was $1.6 million and $0.1
million, respectively, for the nine months ended September 30, 1999, compared to
$1.0 million and $0.9 million, respectively, during the same period of 1998. The
$1.6 million represented the gain from the sale of the equipment in the two
trusts during the first quarter of 1999. No lease revenues were earned during
the first nine months of 1999 due to the sale of the equipment in the two trusts
and an aircraft that was transferred out of a trust into the Partnership's owned
equipment portfolio. Aircraft expenses decreased as a result of the sales and
the transfer.
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
revenues and expenses for the marine vessel was $0.9 million and $0.9 million,
respectively, for the nine months ended September 30, 1999, compared to $1.0
million and $1.0 million for the nine months ended September 30, 1998. The
decrease in revenues was due to lower lease rates for the nine months ended
September 30, 1999 when compared to the same period of 1998. The decrease in
direct expenses was due to a $0.1 million decrease in depreciation expenses
resulted from 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.
(E) Net Income
As a result of the foregoing, the Partnership had net income of $2.2 million for
the nine months ended September 30, 1999, compared to a net income of $4.0
million in the same period of 1998. 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 nine
months ended September 30, 1999 is not necessarily indicative of future periods.
The Partnership distributed $5.9 million to the limited partners, or $0.60 per
weighted-average depositary unit in the nine months ended September 30, 1999.
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
For the nine months ended September 30, 1999, the Partnership generated
operating cash of $6.0 million (net cash provided by operating activities, plus
non-liquidating distributions from USPEs) to meet its operating obligations and
to make distributions (total for nine months ended September 30, 1999 of
approximately $6.2 million) to the partners, but used undistributed available
cash from prior periods of approximately $0.2 million.
During the nine months ended September 30, 1999, the Partnership sold owned
equipment and investments in USPEs and received aggregate proceeds of $4.2
million.
Lessee deposits and reserve for repairs increased $0.2 million during the nine
months ended September 30, 1999 compared to December 31, 1998. The increase in
lessee deposits and reserve for repairs was the result of additional reserves
needed for aircraft engine repair.
During the first nine months of 1999, the Partnership repaid $7.5 million of the
outstanding note balance from the proceeds of asset sales. On September 30,
1999, PLM International, Inc. loaned the Partnership $0.6 million. The loan
proceeds were used to fund operations of the Partnership and pay the principal
and interest on the Partnership debt due September 30, 1999. The Partnership's
senior debt prohibits the Partnership from incurring additional indebtedness.
The Partnership has received a waiver from the bank, which allows this loan. The
waiver requires that the Partnership may not repay PLM International, Inc. until
the Partnership makes the December 31, 1999 senior debt payment. As of November
4, 1999, the outstanding note balance was $11.1 million.
The General Partner has not planned any expenditure, 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 passive 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 special distributions to the partners.
(III) EFFECTS OF YEAR 2000
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 fully tested and appear 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 responses 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 scenarios primarily anticipate a) 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, or b) an inability to continuously employ
equipment assets due to temporary Year 2000 related failure of external
infrastructure necessary to the ongoing operation of the equipment. 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) ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) 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.
FASB Statement No. 137, "Accounting for Derivatives, Instruments, and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133, an
amendment of FASB Statement No. 133," issued in June 1999, defers the effective
date of Statement No. 133. Statement No. 133, as amended, is now effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000. As of
September 30, 1999, the Company is reviewing the effect SFAS No. 133 will have
on the Company's consolidated financial statements.
(V) OUTLOOK FOR THE FUTURE
The Partnership is its passive 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. 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.
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 is experiencing difficulty in re-leasing and selling its
older aircraft.
2. The purchase price of new containers continues to be at very low historical
levels. These lower prices have put downward pressure on per diem lease rates
that customers are willing to pay for the rental of containers.
3. Depressed economic conditions in Asia have led to declining freight rates
through the early part of 1999 for drybulk vessels. The market has stabilized
and is expected to improve over the next 2-3 years in the absence of new
additional orders. Since this Partnership will be in the liquidation phase
during 2000, the Partnership will sell its interest in this vessel during 2000.
4. Railcar loading in North America have 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.
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 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.
The Partnership intends to use cash flow from operations and proceeds from
disposition of equipment to satisfy its operating requirements, pay loan
principal and interest on debt, and pay cash distributions to the partners.
(VI) FORWARD-LOOKING INFORMATION
Except for the historical information contained herein, 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>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposures are that of interest rate and
currency devaluation risk. The Partnership's note payable is a variable rate
debt. The Partnership estimates a one percent increase or decrease in the
Partnership's variable rate debt would result in an increase or decrease,
respectively, in interest expense of $28,000 in the remaining quarter of 1999,
and $28,000 in 2000. The Partnership estimates a two percent increase or
decrease in the Partnership's variable rate debt would result in an increase or
decrease, respectively, in interest expense of $0.1 million in the remaining
quarter of 1999 and $0.1 million in 2000.
During the nine months ended September 30, 1999, 73% of the Partnership's total
lease revenues from wholly-and partially-owned equipment came from non-United
States domiciled lessees. Most of the Partnership's leases require payment in
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 space intentionally left blank)
<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
By: PLM Financial Services, Inc.
General Partner
Date: November 8, 1999 By: /s/ Richard K Brock
-----------------------
Richard K Brock
Vice President and
Corporate Controller
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