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, 2000
[ ] 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,
2000 1999
------------------------------------
ASSETS
<S> <C> <C>
Equipment held for operating lease, at cost $ 83,108 $ 84,191
Less accumulated depreciation (71,319) (69,303)
------------------------------------
Net equipment 11,789 14,888
Cash and cash equivalents 844 486
Accounts receivable, net of allowance for doubtful
accounts of $1,662 in 2000 and $1,757 in 1999 663 727
Investments in unconsolidated special-purpose entities 2,235 2,498
Deferred charges, net of accumulated
amortization of $309 in 1999 -- 31
Prepaid expenses and other assets 26 60
------------------------------------
Total assets $ 15,557 $ 18,690
====================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 133 $ 786
Due to affiliates 4,663 699
Lessee deposits and reserves for repairs 1,669 1,419
Note payable -- 7,458
------------------------------------
Total liabilities 6,465 10,362
------------------------------------
Partners' capital:
Limited partners (9,871,073 depositary units as
of June 30, 2000 and December 31, 1999) 9,092 8,328
General Partner -- --
------------------------------------
Total partners' capital 9,092 8,328
------------------------------------
Total liabilities and partners' capital $ 15,557 $ 18,690
====================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
STATEMENTS OF INCOME
(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,
2000 1999 2000 1999
--------------------------- ---------------------------
REVENUES
<S> <C> <C> <C> <C>
Lease revenue $ 3,014 $ 3,908 $ 6,168 $ 7,812
Interest and other income 28 46 42 114
Net gain on disposition of equipment 8 453 45 466
----------------------------- ---------------------------
Total revenues 3,050 4,407 6,255 8,392
----------------------------- ---------------------------
EXPENSES
Depreciation and amortization 1,369 1,990 2,757 3,987
Repairs and maintenance 706 608 1,161 1,090
Equipment operating expenses 8 203 16 399
Insurance expense 34 48 69 128
Management fees to affiliate 171 214 350 432
Interest expense 117 245 267 561
General and administrative expenses to affiliates 91 116 204 249
Other general and administrative expenses 199 271 496 637
Loss on revaluation of equipment 191 -- 191 --
Recovery of bad debts (62) (13) (105) (22)
------------------------------ ---------------------------
Total expenses 2,824 3,682 5,406 7,461
----------------------------- ---------------------------
Minority interests -- (2) -- 19
Equity in net income (loss) of unconsolidated
special-purpose entities (13) 4 (85) 1,477
------------------------------ ---------------------------
Net income $ 213 $ 727 $ 764 2,427
============================== ===========================
PARTNERS' SHARE OF NET INCOME
Limited partners $ 213 $ 623 $ 764 $ 2,219
General Partner -- 104 -- 208
-----------------------------
---------------------------
Total $ 213 $ 727 $ 764 $ 2,427
=============================== ==========================
Limited partners net income per weighted-average
depositary unit $ 0.02 $ 0.06 $ 0.08 $ 0.22
============================== ===========================
Cash distribution $ -- $ 2,079 $ -- $ 4,157
=============================== ===========================
Cash distribution per weighted-average
depositary unit $ -- $ 0.20 $ -- $ 0.40
============================== ===========================
</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, 1998 to June 30, 2000
(in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
------------------------------------------------
<S> <C> <C> <C>
Partners' capital as of December 31, 1998 $ 12,082 $ -- $ 12,082
Net income 3,649 390 4,039
Cash distribution (7,403) (390) (7,793)
-------------------------------------------------
Partners' capital as of December 31, 1999 8,328 -- 8,328
Net income 764 -- 764
-------------------------------------------------
Partners' capital as of June 30, 2000 $ 9,092 $ -- $ 9,092
=================================================
</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 Six Months
Ended June 30,
2000 1999
-----------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 764 $ 2,427
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,757 3,987
Loss on revaluation of equipment 191 --
Net gain on disposition of equipment (45) (466)
Equity in net loss (income) from unconsolidated special-purpose entities 85 (1,477)
Changes in operating assets and liabilities:
Accounts receivable, net 96 (687)
Prepaid expenses and other assets 34 12
Accounts payable and accrued expenses (653) (573)
Due to affiliates 14 30
Lessee deposits and reserves for repairs 250 340
Minority interests -- (89)
----------------------------
Net cash provided by operating activities 3,493 3,504
----------------------------
INVESTING ACTIVITIES
Payments for capitalized improvements (11) (2)
Distributions from unconsolidated special-purpose entities 178 8
Distributions from liquidation of unconsolidated special-purpose entity -- 3,548
Proceeds from disposition of equipment 206 634
---------------------------
Net cash provided by investing activities 373 4,188
----------------------------
FINANCING ACTIVITIES
Principal payments on note payable (7,458) (3,584)
Due from affiliates 3,950 --
Cash distributions paid to limited partners -- (3,949)
Cash distributions paid to General Partner -- (208)
----------------------------
Net cash used in financing activities (3,508) (7,741)
----------------------------
Net increase (decrease) in cash and cash equivalents 358 (49)
Cash and cash equivalents at beginning of period 486 3,429
----------------------------
Cash and cash equivalents at end of period 844 $ 3,380
============================
SUPPLEMENTAL INFORMATION
Interest paid $ 220 $ 561
=================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
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, 2000 and December 31, 1999, the
statements of income for the three months and six months ended June 30,
2000 and 1999, the statements of changes in partners' capital for the
period from December 31, 1998 to June 30, 2000, and the statements of cash
flows for the six months ended June 30, 2000 and 1999. 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, 1999, on file at the Securities and
Exchange Commission.
2. SCHEDULE OF PARTNERSHIP PHASES
The Partnership, in accordance with its limited partnership agreement,
entered its liquidation phase on January 1, 2000, and has commenced an
orderly liquidation of the Partnership's assets. The Partnership will
terminate on December 31, 2000, unless terminated earlier upon the sale of
all equipment and by certain other events. The General Partner may no
longer purchase additional equipment. All future cash flows and surplus
funds, if any, are to be used for distributions to partners, except to the
extent used to maintain reasonable reserves. During the liquidation phase,
the Partnership's assets will continue to be recorded at the lower of the
carrying amount or fair value less cost to sell. The General Partner
anticipates that the liquidation of Partnership assets will be completed by
the end of the year 2000.
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. There
were no cash distributions for the three and six months ended June 30,
2000. For the six months ended June 30, 1999, cash distributions totaled
$4.2 million. For the three months ended June 30, 1999, cash distributions
totaled $2.1 million. Cash distributions to the limited partners of $1.7
million for the six months ended June 30, 1999, were deemed to be a return
of capital.
4. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES
The balance due to affiliates as of June 30, 2000 included $0.1 million due
to FSI and its affiliate for management fees, and $4.6 million due to FSI
for a loan made to the Partnership. The Partnership is charged market rate
interest on the loans from FSI. Interest expense charged by FSI was $14,000
and $43,000 for the three and six months ended June 30, 2000, respectively.
The balance due to affiliates as of December 31, 1999 includes $0.1 million
due to FSI and its affiliates for management fees and $0.6 million due to
FSI for a loan made to the Partnership.
The Partnership's proportional share of unconsolidated special purpose
entities (USPE's)-affiliated management fees, of $17,000 and $12,000, were
payable as of June 30, 2000 and December 31, 1999, respectively.
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
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 2000 and 1999 is 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,
2000 1999 2000 1999
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees $ 16 $ -- $ 27 $ --
Data processing and administrative
expenses 2 -- 6 2
</TABLE>
5. EQUIPMENT
The components of owned equipment were as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------------------------------
<S> <C> <C>
Aircraft $ 42,000 $ 42,000
Railcars 33,244 33,572
Marine containers 3,939 4,453
Trailers 3,925 4,166
---------------------------------------
83,108 84,191
Less accumulated depreciation (71,319) (69,303)
-------------------------------------
Net equipment $ 11,789 $ 14,888
=====================================
</TABLE>
As of June 30, 2000, all equipment in the Partnership portfolio was either
on lease or operating in PLM-affiliated short-term trailer rental
facilities, except for 69 railcars, and an aircraft. As of December 31,
1999, all equipment in the Partnership portfolio was either on lease or
operating in PLM-affiliated short-term rental facilities, except for 40
railcars and an aircraft. The net book value of the equipment off lease was
$0.9 million and $1.2 million as of June 30, 2000 and December 31, 1999,
respectively.
Capital improvements to the Partnership's equipment of $11,000 were made
during the six months ended June 30, 2000. Capital improvements to the
Partnership's equipment of $2,000 were made during the six months ended
June 30, 1999.
During the six months ended June 30, 2000, 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 $0.2 million. During the
six months ended June 30, 1999, the Partnership sold or disposed of marine
containers, trailers, and railcars, with an aggregate net book value of
$0.1 million, for aggregate proceeds of $0.6 million.
On May 24, 2000, FSI, on behalf of the Partnership, entered into an asset
purchase agreement to sell the refrigerated and dry trailer assets of the
Partnership. Closing of the transaction is contingent on numerous
conditions. If the sale is completed, the General Partner estimates that
the Partnership's sale proceeds to be approximately $0.2 million. Since the
sale of the trailers is contingent upon certain conditions being met, the
Partnership's refrigerated and dry trailers are not classified as assets
held for sale.
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
5. EQUIPMENT (CONTINUED)
During the six months ended June 30, 2000, the Partnership reduced the
carrying value of these trailers by $0.2 million to the equipment's
estimated realizable value.
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>
June 30, December 31,
2000 1999
----------------------------------
<S> <C> <C>
56% interest in an entity owning a marine vessel $ 2,199 $ 2,440
25% interest in a trust that owned four commercial aircraft 36 58
---------------------------------
Net investments $ 2,235 $ 2,498
=================================
</TABLE>
As of June 30, 2000 and December 31, 1999, all jointly-owned equipment in
the Partnership's USPE portfolio was on lease.
For the six months ended June 30, 2000, all jointly-owned equipment was
accounted for under the equity method of accounting. For the six months
ended June 30, 1999, certain jointly-owned equipment of which the
Partnership had a controlling interest greater than 50%, was accounted for
under the consolidation method of accounting.
7. OPERATING SEGMENTS
The Partnership operates in five different segments: aircraft leasing,
railcar leasing, marine vessel leasing, marine container leasing, and
trailer 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 Marine
Aircraft Railcar Vessel Container Trailer All
For the quarter ended June 30, 2000 Leasing Leasing Leasing Leasing Leasing Other<F1>1 Total
----------------------------------- ------- ------- ------- ------- ------- --------- -----
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C>
Lease revenue $ 1,222 $ 1,637 $ -- $ 21 $ 134 $ -- $ 3,014
Interest income and other 2 3 -- -- -- 23 28
Net gain (loss) on disposition of
equipment -- (6) -- 6 8 -- 8
------------------------------------------------------------------------
Total revenues 1,224 1,634 -- 27 142 23 3,050
Costs and Expenses
Operations support 159 527 -- 1 51 10 748
Depreciation and amortization 866 407 -- 19 61 16 1,369
Interest expense -- -- -- -- -- 117 117
Management fees 45 117 -- 2 7 -- 171
General and administrative expenses 56 53 -- -- 18 163 290
Recovery of bad debts -- (52) -- -- -- (10) (62)
------------------------------------------------------------------------
Total costs and expenses 1,126 1,052 -- 22 137 296 2,633
------------------------------------------------------------------------
Equity in net loss of USPEs -- -- (13) -- -- -- (13)
------------------------------------------------------------------------
Net income (loss) $ 98 $ 582 $ (13) $ 5 $ 5 $ (273) $ 404
========================================================================
Total assets as of June 30, 2000 $ 5,419 $ 5,522 $ 2,199 $ 269 $ 1,437 $ 902 $ 15,748
========================================================================
<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, certain operations support and general and administrative
expenses.
</FN>
</TABLE>
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
7. OPERATING SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
Marine
Aircraft Railcar Vessel Trailer Container All
For the quarter ended June 30, 1999 Leasing Leasing Leasing Leasing Leasing Other<F1>1 Total
----------------------------------- ------- ------- ------- ------- ------- ---------- -----
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C>
Lease revenue $ 1,509 $ 1,712 $ 471 $ 182 $ 34 $ -- $ 3,908
Interest income and other 5 -- -- -- -- 41 46
Net gain on disposition of
Equipment -- 353 -- 1 99 -- 453
---------------------------------------------------------------------------
Total revenues 1,514 2,065 471 183 133 41 4,407
COSTS AND EXPENSES
Operations support 115 459 226 48 1 10 859
Depreciation and amortization 1,202 442 214 88 29 15 1,990
Interest expense -- -- -- -- -- 245 245
Management fees 61 118 23 10 2 -- 214
General and administrative expenses 142 57 8 30 1 149 387
(Recovery of) provision for bad -- (16) -- 3 -- -- (13)
debts
---------------------------------------------------------------------------
Total costs and expenses 1,520 1,060 471 179 33 419 3,682
---------------------------------------------------------------------------
Minority interests -- -- (2) -- -- -- (2)
Equity in net income (loss) of USPEs 4 -- -- -- -- -- 4
---------------------------------------------------------------------------
Net income (loss) $ (2) $ 1,005 $ (2) $ 4 $ 100 $ (378) $ 727
===========================================================================
Total assets as of June 30, 1999 $ 11,214 $ 7,230 $ 5,154 $ 2,058 $ 481 $ 3,769 $ 29,906
===========================================================================
Marine Marine
Aircraft Railcar Vessel Container Trailer All
For the six months ended June 30, 2000 Leasing Leasing Leasing Leasing Leasing Other<F1>1 Total
-------------------------------------- -------- ------- ------- --------- ------- --------- ------
REVENUES
Lease revenue $ 2,427 $ 3,388 $ -- $ 53 $ 300 $ -- $ 6,168
Interest income and other 2 3 -- -- -- 37 42
Net gain (loss) on disposition of
equipment -- 38 -- 13 (6) -- 45
----------------------------------------------------------------------------
Total revenues 2,429 3,429 -- 66 294 37 6,255
COSTS AND EXPENSES
Operations support 208 913 -- 1 104 20 1,246
Depreciation and amortization 1,733 827 -- 42 124 31 2,757
Interest expense -- -- -- -- -- 267 267
Management fees 91 240 -- 3 16 -- 350
General and administrative expenses 93 109 -- -- 47 451 700
Recovery of bad debts -- (94) -- -- (1) (10) (105)
--------------------------------------------------------------------------
Total costs and expenses 2,125 1,995 -- 46 290 759 5,215
--------------------------------------------------------------------------
Equity in net income (loss) of USPEs 22 -- (107) -- -- -- (85)
---------------------------------------------------------------------------
Net income (loss) $ 326 $ 1,434 $ (107) $ 20 $ 4 $ (722) $ 955
==========================================================================
Total assets as of June 30, 2000 $ 5,419 $ 5,522 $ 2,199 $ 269 $ 1,437 $ 902 $ 15,748
==========================================================================
<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, certain operations support and general and administrative
expenses.
</FN>
</TABLE>
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
7. OPERATING SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
Marine Marine
Aircraft Railcar Vessel Trailer Container All
For the six months ended June 30, 1999 Leasing Leasing Leasing Leasing Leasing Other<F1>1 Total
-------------------------------------- -------- ------- -------- ------- --------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Lease revenue $ 3,019 $ 3,469 $ 930 $ 323 $ 71 $ -- $ 7,812
Interest income and other 10 -- -- -- -- 104 114
Net gain (loss) on disposition of
equipment 2 370 -- (6) 100 -- 466
--------------------------------------------------------------------------
Total revenues 3,031 3,839 930 317 171 104 8,392
Costs and Expenses
Operations support 209 809 484 94 1 20 1,617
Depreciation and amortization 2,405 885 428 177 62 30 3,987
Interest expense -- -- -- -- -- 561 561
Management fees 124 240 46 19 3 -- 432
General and administrative expenses 333 123 23 56 4 347 886
(Recovery of) provision for bad (20) 29 -- (31) -- -- (22)
debts
--------------------------------------------------------------------------
Total costs and expenses 3,051 2,086 981 315 70 958 7,461
--------------------------------------------------------------------------
Minority interests -- -- 19 -- -- -- 19
Equity in net income (loss) of USPEs 1,477 -- -- -- -- -- 1,477
--------------------------------------------------------------------------
======
Net income (loss) $ 1,457 $ 1,753 $ (32) $ 2 $ 101 $ (854) $ 2,427
==========================================================================
Total assets as of June 30, 1999 $ 11,214 $ 7,230 $ 5,154 $ 2,058 $ 481 $ 3,769 $29,906
==========================================================================
<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, certain operations support and general and administrative
expenses.
</FN>
</TABLE>
8. DEBT
During the first six months of 2000, the Partnership paid off the
outstanding note balance of $7.5 million.
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 six months ended June 30, 2000 and 1999 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
the likelihood 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.
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
11. LIQUIDATION AND SPECIAL DISTRIBUTIONS
On January 1, 2000, the General Partner began the liquidation phase of the
Partnership with the intent to commence an orderly liquidation of the
Partnership assets. The General Partner is actively marketing the remaining
equipment portfolio with the intent of maximizing sale proceeds. As sale
proceeds are received the General Partner intends to periodically declare
special distributions to distribute the sale proceeds to the partners.
During the liquidation phase of the Partnership the equipment will continue
to be leased under operating leases until sold. Operating cash flows, to
the extent they exceed Partnership expenses, will continue to be
distributed on a quarterly basis to partners. The amounts reflected for
assets and liabilities of the Partnership have not been adjusted to reflect
liquidation values. The equipment portfolio continues to be carried at the
lower of depreciated cost or fair value less cost to dispose. Although the
General Partner estimates that there will be distributions after
liquidation of assets and liabilities, the amounts cannot be accurately
determined prior to actual liquidation of the equipment. Any excess
proceeds over expected Partnership obligations will be distributed to the
Partners throughout the liquidation period. Upon final liquidation, the
Partnership will be dissolved.
No special distributions were paid in the first six months of 2000 and
1999. The Partnership is not permitted to reinvest proceeds from sales or
liquidations of equipment. These proceeds, in excess of operational cash
requirements, are periodically paid out to limited partners in the form of
special distributions. The sales and liquidations occur because of certain
damaged equipment, the determination by the General Partner that it is the
appropriate time to maximize the return on an asset through sale of that
asset, and, in some leases, the ability of the lessee to exercise purchase
options.
<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 JUNE 30, 2000 AND 1999
In September 1999, the General Partner amended the corporate-by-laws of certain
unconsolidated special-purpose entities (USPEs) in which the Partnership, or any
affiliated program, owns an interest greater than 50%. The amendment to the
corporate-by-laws provided 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 (the Amendment). As such, although the Partnership may own a majority
interest in a USPE, the Partnership does not control its management and thus the
equity method of accounting will be used after adoption of the Amendment. As a
result of the Amendment, as of September 30, 1999, all jointly owned equipment
in which the Partnership owned a majority interest, which had been consolidated,
were reclassified to investments in USPEs. Lease revenues and direct expenses
for jointly owned equipment in which the Partnership held a majority interest
were reported under the consolidation method of accounting during the three and
six months ended June 30, 1999 and were included with the owned equipment
operations. For the three and six months ended June 30, 2000, lease revenues and
direct expenses for these entities are reported under the equity method of
accounting and are included with the operations of the USPEs.
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating and asset-specific insurance expenses) on owned equipment
decreased during the three months ended June 30, 2000 when compared to the same
period of 1999. 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 June 30,
2000 1999
------------------------------------
Railcars $ 1,110 $ 1,253
Aircraft 1,063 1,394
Trailers 83 134
Marine containers 20 33
Marine vessel -- 245
Railcars: Railcars lease revenues and direct expenses were $1.6 million and $0.5
million, respectively, for the quarter ended June 30, 2000, compared to $1.7
million and $0.5 million, respectively, during the same period of 1999. The
number of railcars owned by the Partnership has been declining due to sales and
dispositions. The result of this declining fleet is a decrease in railcar
contribution.
Aircraft: Aircraft lease revenues and direct expenses were $1.2 million and $0.2
million, respectively, for the quarter ended June 30, 2000, compared to $1.5
million and $0.1 million, respectively, during the same period of 1999. Lease
revenues decreased $0.3 million during the three months ended June 30, 2000 when
compared to the same period in 1999 due to the sale of an aircraft during the
fourth quarter of 1999.
Trailers: Trailer lease revenues and direct expenses were $0.1 million and $0.1
million, respectively, for the quarter ended June 30, 2000, compared to $0.2
million and $48,000, respectively, during the same period of 1999. 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
$21,000 and $1,000 respectively, for the quarter ended June 30, 2000, compared
to $34,000 and $1,000, respectively, during the same period of 1999. The number
of marine containers owned by the Partnership has been declining due to sales
and dispositions. The result of this declining fleet has been a decrease in
marine container contribution.
Marine vessel: Marine vessel lease revenues and direct expenses were zero for
the quarter ended June 30, 2000, compared to 0.5 million and $0.2 million,
respectively, for the same period of 1999.
The September 30, 1999 Amendment that changed the accounting method of majority
held equipment from the consolidation method of accounting to the equity method
of accounting impacted the reporting of lease revenues and direct expenses of
one marine vessel. As a result of the Amendment, during the three months ended
June 30, 2000, lease revenues decreased $0.5 million and direct expenses
decreased $0.2 million when compared to the same period of 1999.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $1.9 million for the quarter ended June 30, 2000
decreased from $2.8 million for the same period of 1999. Significant variances
are explained as follows:
(i) A decrease of $0.6 million in depreciation and amortization expenses
from 1999 levels reflects a decrease of $0.4 million due to the sale
or disposition of certain Partnership assets during 2000 and 1999. A
decrease of $0.2 million is the result of the Amendment which changed
the accounting method used for majority held equipment from the
consolidation method of accounting to the equity method of accounting.
(ii) Loss on revaluation of equipment increased $0.2 million during the
three months ended June 30, 2000 and resulted from the Partnership
reducing the carrying value of trailers to their estimated net
realizable value. There was no revaluation of equipment required
during the same period of 1999.
(iii)A decrease of $0.1 million in interest expense was due to lower
average debt balances outstanding during the three months ended June
30, 2000, compared to the same period in 1999.
(iv) A $0.1 million decrease in administrative expenses was due to the
reduction of the size of the Partnership's equipment portfolio.
(v) A decrease of $49,000 in bad debt expense from 1999 was due to the
collection of $0.1 million during the second quarter of 2000 from past
due receivables that had previously been reserved for as a bad debt.
(C) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of owned equipment for the second quarter of
2000 was $8,000, resulting from the disposition of marine containers, railcars,
and trailers, with an aggregate net book value of $0.1 million, for aggregate
proceeds of $0.1 million. The net gain on the disposition of owned equipment for
the second quarter of 1999 was $0.5 million, resulting from the disposition of
marine containers, railcars, and trailers, with an aggregate net book value of
$0.1 million, for aggregate proceeds of $0.6 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 June 30,
2000 1999
--------------------------------
Marine vessel $ (13 ) $ --
Aircraft, aircraft engines, and rotables -- 4
--------------------------------
Equity in net income (loss) of USPEs $ (13 ) $ 4
=================================
Marine vessel: The Partnership's share of revenues and expenses of marine
vessels was $0.3 million and $0.3 million, respectively, for the quarter ended
June 30, 2000, compared to zero for the same period of 1999.
The increase in marine vessel lease revenues of $0.3 million and depreciation
expense, direct expenses, and administrative expenses of $0.3 million during the
three months ended June 30, 2000, was caused by the September 30, 1999 Amendment
that changed the accounting method of majority held equipment from the
consolidation method of accounting to the equity method of accounting for one
marine vessel. The lease revenues and depreciation expense, direct expenses, and
administrative expenses for the majority owned marine vessel were reported under
the consolidation method of accounting under Owned Equipment Operations during
the three months ended June 30, 1999.
Aircraft, aircraft engines, and rotables: As of June 30, 2000, the Partnership
had no remaining interests in entities that owned aircraft, aircraft engines, or
rotables. The Partnership's share of aircraft revenues and expenses for the
quarter ended June 30, 2000 were zero, compared to $1,000 and a credit of $3,000
respectively, during the same period of 1999.
(E) Net Income
As a result of the foregoing, the Partnership had a net income of $0.4 million
in the second quarter of 2000 compared to net income of $0.7 million in the
second quarter of 1999. 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 June 30, 2000 is not necessarily indicative of future periods.
COMPARISON OF THE PARTNERSHIP'S OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE
30, 2000 AND 1999
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating and asset-specific insurance expenses) on owned equipment
decreased during the six months ended June 30, 2000 when compared to the same
period of 1999. 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 Six Months
Ended June 30,
2000 1999
------------------------------------
Railcars $ 2,475 $ 2,660
Aircraft 2,219 2,810
Trailers 196 229
Marine containers 52 70
Marine vessel -- 446
Railcars: Railcars lease revenues and direct expenses were $3.4 million and $0.9
million, respectively, for the six months ended June 30, 2000, compared to $3.5
million and $0.8 million, respectively, during the same period of 1999. The
decrease in lease revenues resulted from dispositions of railcars during 2000
and 1999. The increase in direct expenses of $0.1 million was a result of more
repairs being required on rail equipment in the six months ended June 30, 2000
than was needed during the six months ended June 30, 1999.
Aircraft: Aircraft lease revenues and direct expenses were $2.4 million and $0.2
million, respectively, for the six months ended June 30, 2000, compared to $3.0
million and $0.2 million, respectively, during the same period of 1999. Lease
revenues decreased $0.6 million during the six months ended June 30, 2000 when
compared to the same period in 1999 due to the sale of an aircraft during the
fourth quarter of 1999.
Trailers: Trailer lease revenues and direct expenses were $0.3 million and $0.1
million, respectively, for the six months ended June 30, 2000, compared to $0.3
million and $0.1 million, respectively, during the same period of 1999. 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 $1,000, respectively, for the six months ended June 30, 2000,
compared to $0.1 million and $1,000, respectively, during the same period of
1999. 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.
Marine vessel: There were no marine vessel lease revenues and direct expenses
for the six months ended June 30, 2000, compared to $0.9 million and $0.5
million, respectively, during the same period of 1999.
The September 30, 1999 Amendment that changed the accounting method of majority
held equipment from the consolidation method of accounting to the equity method
of accounting impacted the reporting of lease revenues and direct expenses of
one marine vessel. As a result of the Amendment, during the six months ended
June 30, 2000, lease revenues decreased $0.9 million and direct expenses
decreased $0.5 million when compared to the same period of 1999.
(B) Indirect Operating Expenses Related to Owned Equipment Operations
Total indirect expenses of $4.0 million for the six months ended June 30, 2000
decreased from $5.8 million for
the same period of 1999. Significant variances are explained as follows:
(i) A decrease of $1.2 million in depreciation and amortization expenses
from 1999 levels reflects the decrease of $0.8 million due to the sale
or disposition of certain Partnership assets during 2000 and 1999. A
decrease of $0.4 million was the result of the Amendment which changed
the accounting method used for majority held equipment from the
consolidation method of accounting to the equity method of accounting.
(ii)Loss on revaluation of equipment increased $0.2 million during the six
months ended June 30, 2000 and resulted from the Partnership reducing
the carrying value of trailers to their estimated net realizable value.
There was no revaluation of equipment required during the same period
of 1999.
(iii) A decrease of $0.3 million in interest expense was due to lower
average debt balances outstanding during the six months ended June 30,
2000 when compared to the same period of 1999.
(iv)A decrease of $0.2 million in general and administrative expenses from
1999 levels was due to the reduction of the size of the Partnership's
equipment portfolio.
(v) A decrease of $0.1 million in bad debt expense from 1999 was due to the
collection of $0.1 million during the six months ended June 30, 2000
from past due receivables that had previously been reserved for as a
bad debt. The decrease was also due to the General Partner's evaluation
of the collectability of receivables due from certain lessees.
(vi)A decrease of $0.1 million in management fees to affiliate from 1999
levels was due to lower lease revenues during the six months ended June
30, 2000, compared to the same period of 1999.
(C) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of equipment was $45,000 for the six months
ended June 30, 2000, resulting from the disposition of marine containers,
trailers, and railcars with an aggregate net book value of $0.2 million, for
aggregate proceeds of $0.2 million. The net gain on the disposition of equipment
was $0.5 million for the six months ended June 30, 1999, resulting from the
disposition of marine containers, trailers, and railcars with an aggregate net
book value of $0.1 million, for aggregate proceeds of $0.6 million.
<PAGE>
(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 Six Months
Ended June 30,
2000 1999
---------------------------------
Aircraft, aircraft engines, and rotables $ 22 $ 1,477
Marine vessel (107 ) --
=================================
Equity in net income (loss) of USPEs $ (85 ) $ 1,477
=================================
Aircraft, aircraft engines, and rotables: As of June 30, 2000, the Partnership
had no remaining interests in entities that owned aircraft, aircraft engines, or
rotables. The Partnership's share of aircraft revenues and expenses was $22,000
and zero, respectively, for the six months ended June 30, 2000, compared to $1.6
million and $0.1 million, respectively, during the same period of 1999. The
$22,000 of aircraft revenues for the six months ended June 30, 2000 represented
interest income earned during the first six months of 2000 on accounts
receivable. The $1.6 million in revenue in 1999 represented the gain from the
sale of the equipment in two trusts during the first quarter of 1999.
Marine vessel: The Partnership's share of revenues and expenses from the marine
vessel was $0.5 million and $0.6 million, respectively, for the six months ended
June 30, 2000, compared to zero for the same period of 1999.
The increase in marine vessel lease revenues of $0.5 million and depreciation
expense, direct expenses, and administrative expenses of $0.6 million during the
six months ended June 30, 2000, was caused by the September 30, 1999 Amendment
that changed the accounting method of majority held equipment from the
consolidation method of accounting to the equity method of accounting for one
marine vessel. The lease revenues and depreciation expense, direct expenses, and
administrative expenses for the majority owned marine vessel were reported under
the consolidation method of accounting under Owned Equipment Operations during
the six months ended June 30, 1999.
(E) Net Income
As a result of the foregoing, the Partnership had net income of $1.0 million for
the six months ended June 30, 2000, compared to a net income of $2.4 million in
the same period of 1999. 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, 2000 is not necessarily indicative of future periods.
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
For the six months ended June 30, 2000, the Partnership generated operating cash
of $3.7 million (net cash provided by operating activities, plus non-liquidating
distributions from USPEs) to meet its operating obligations.
During the six months ended June 30, 2000, the Partnership sold owned equipment
received aggregate proceeds of $0.2 million.
During the six months ended June 30, 2000, accounts payable and accrued expenses
decreased $0.7 million. A $0.4 million decrease in trade accounts payable was
due to the reduction of the size of the Partnership's equipment portfolio. A
$0.3 million decrease in accrued expenses was due to the payment of $0.3 million
in the first six months of 2000 for repairs to an aircraft, which was accrued at
December 31, 1999. A similar accrual was not required on June 30, 2000.
During the six months ended June 30, 2000, due to affiliates increased $4.0
million due to increased Partnership borrowings from the General Partner.
During the six months ended June 30, 2000, lessee deposits and reserves for
repairs increased $0.3 million due to an increase in reserves for repairs for
two aircraft.
PLM Financial Services, Inc. (FSI or 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 active liquidation phase. As a result, the size of the
Partnership's remaining equipment portfolio and, in turn, the amount of net cash
flows from operations will continue to become progressively smaller as assets
are sold. Although distribution levels may be reduced, significant asset sales
may result in potential special distributions to the partners.
The amounts reflected for assets and liabilities of the Partnership have not
been adjusted to reflect liquidation values. The equipment portfolio that is
actively being marketed for sale by the General Partner continues to be carried
at the lower of depreciated cost or fair value less cost of disposal. Although
the General Partner estimates that there will be distributions to the partners
after final disposal of assets and settlement of liabilities, the amounts cannot
be accurately determined prior to actual disposal of the equipment.
On April 18, 2000, the General Partner for the Partnership announced that
effective immediately, it will not recognize any further transfers involving
trading of units in this partnership for the remainder of the 2000 calendar
year. PLM Equipment Growth Fund III (hereafter referred to as "the Partnership")
is listed on the OTC Bulletin Board under the symbol GFZPZ.
In making the announcement, the General Partner cited the Partnership's need to
continue to comply with Internal Revenue Service (IRS) Notice 88-75 and IRS Code
Section 7704, which contain safe harbor provisions regarding the maximum number
of partnership units that can be traded during a calendar year in order for a
partnership not to be deemed a publicly traded partnership for income tax
purposes. Transfers for the remainder of the year may only be processed,
pursuant to IRS Code Section 7704, through a qualified matching service. The
General Partner will also continue to recognize transfers specifically excluded
from the safe harbor limitations, referred to in the regulations as "transfers
not involving trading," which includes transfers at death, transfers between
family members, and transfers involving distributions from a qualified
retirement plan.
(III) OUTLOOK FOR THE FUTURE
The Partnership entered its liquidation phase on January 1, 2000. 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 2000, including changes in the markets for the Partnership's
equipment and changes in the regulatory environment in which that equipment
operates.
Liquidation of the Partnership's equipment and its investment in a USPE will
cause 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 year 2000 include:
1. One of the Partnership's aircraft has been off-lease for approximately two
years. This Stage II aircraft required extensive repairs and maintenance
and the Partnership has had difficulty selling the aircraft. This aircraft
will remain off-lease until it is sold. During the six months ended June
30, 2000, the Partnership received a $0.1 million refundable security
deposit from a potential buyer of the Partnership's Boeing 737-200 Stage II
commercial aircraft.
2. The cost of new marine containers has been at historic lows for the past
several years which has caused downward pressure on per diem lease rates.
Recently, the cost of marine containers have started to increase which, if
this trend continues, should translate into rising per diem lease rates.
3. Depressed economic conditions in Asia have led to declining freight rates
through 2000 for dry bulk marine vessels. In the absence of new additional
orders, the market would be expected to stabilize and improve over the next
2-3 years.
4. Railcar loading in North America have continued to be high, however a
softening in the market is expected during 2000, which leads to lower
utilization and lower contribution to the Partnership as existing leases
expire and renewal leases are negotiated.
The ability of the Partnership to realize acceptable lease rates on its
equipment in the different equipment markets is contingent on many factors, such
as specific market conditions and economic activity, technological obsolescence,
and government or other regulations. The unpredictability of these factors, or
of their occurrence, makes it difficult for the General Partner to clearly
define trends or influences that may impact the performance of the Partnership's
equipment. The General Partner continually monitors both the equipment markets
and the performance of the Partnership's equipment in these markets. The General
Partner may decide to reduce the Partnership's exposure to those 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, maintain working
capital reserves, and pay cash distributions to the investors.
(IV) 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposure is currency devaluation risk.
During the six months ended June 30, 2000, 81% 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.
<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: August 4, 2000 By: /s/ Richard K Brock
-------------------------------------------
Richard K Brock
Vice President and
Chief Financial Officer
