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, 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 ______
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
BALANCE SHEETS
(in thousands of dollars, except unit amounts)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------------------------------
<S> <C> <C>
ASSETS
Equipment held for operating lease, at cost $ 61,983 $ 84,191
Less accumulated depreciation (53,906) (69,303)
------------------------------------
Net equipment 8,077 14,888
Cash and cash equivalents 12,276 486
Accounts receivable, net of allowance for doubtful
accounts of $1,697 in 2000 and $1,757 in 1999 710 727
Investments in unconsolidated special-purpose entities 191 2,498
Deferred charges, net of accumulated
amortization of $309 in 1999 -- 31
Prepaid expenses and other assets 9 60
------------------------------------
Total assets $ 21,263 $ 18,690
====================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 479 $ 786
Due to affiliates 101 699
Lessee deposits and reserves for repairs 158 1,419
Note payable -- 7,458
------------------------------------
Total liabilities 738 10,362
------------------------------------
Partners' capital:
Limited partners (9,871,073 depositary units as
of September 30, 2000 and December 31, 1999) 20,525 8,328
General Partner -- --
------------------------------------
Total partners' capital 20,525 8,328
------------------------------------
Total liabilities and partners' capital $ 21,263 $ 18,690
====================================
</TABLE>
See accompanying notes to financial statements.
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,
2000 1999 2000 1999
----------------------------- ---------------------------
<S> <C> <C> <C> <C>
REVENUES
Lease revenue $ 2,962 $ 3,852 $ 9,130 $ 11,664
Interest and other income 67 80 109 194
Net gain on disposition of equipment 9,635 12 9,680 478
----------------------------- ---------------------------
Total revenues 12,664 3,944 18,919 12,336
----------------------------- ---------------------------
EXPENSES
Depreciation and amortization 1,175 1,982 3,932 5,969
Repairs and maintenance 552 661 1,713 1,765
Equipment operating expenses 7 255 23 640
Insurance expense 32 74 101 201
Management fees to affiliate 160 194 510 626
Interest expense 39 252 306 813
General and administrative expenses to affiliates 97 129 301 378
Other general and administrative expenses 224 210 720 847
Loss on revaluation of equipment 11 -- 202 --
Provision for (recovery of) bad debts 36 407 (69) 385
----------------------------- ---------------------------
Total expenses 2,333 4,164 7,739 11,624
----------------------------- ---------------------------
Minority interests -- 4 -- 22
Equity in net income of unconsolidated
special-purpose entities 1,102 -- 1,017 1,477
----------------------------- ---------------------------
Net income (loss) $ 11,433 $ (216) $ 12,197 2,211
============================= ===========================
PARTNERS' SHARE OF NET INCOME (LOSS)
Limited partners $ 11,433 $ (320) $ 12,197 $ 1,899
General Partner -- 104 -- 312
----------------------------- ---------------------------
Total $ 11,433 $ (216) $ 12,197 $ 2,211
============================= ===========================
Limited partners' net income (loss) per weighted-
average depositary unit $ 1.16 $ (0.03) $ 1.24 $ 0.19
============================= ===========================
Cash distribution $ -- $ 2,078 $ -- $ 6,235
============================= ===========================
Cash distribution per weighted-average
depositary unit $ -- $ 0.20 $ -- $ 0.60
============================= ===========================
</TABLE>
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Period from December 31, 1998 to September 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 12,197 -- 12,197
-------------------------------------------------
Partners' capital as of September 30, 2000 $ 20,525 $ -- $ 20,525
=================================================
</TABLE>
See accompanying notes to financial statements.
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,
2000 1999
-----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 12,197 $ 2,211
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 3,932 5,969
Loss on revaluation of equipment 202 --
Net gain on disposition of equipment (9,680) (478)
Equity in net income from unconsolidated special-purpose entities (1,017) (1,477)
Changes in operating assets and liabilities:
Accounts receivable, net 17 250
Prepaid expenses and other assets 51 26
Accounts payable and accrued expenses (307) (652)
Due to affiliates 2 4
Lessee deposits and reserves for repairs (1,261) 337
Minority interests -- (224)
-----------------------------
Net cash provided by operating activities 4,136 5,966
-----------------------------
INVESTING ACTIVITIES
Payments for capitalized improvements (78) (19)
Distributions from unconsolidated special-purpose entities 160 20
Distributions from liquidation of unconsolidated special-purpose entities 3,164 3,548
Proceeds from disposition of equipment 12,466 699
-----------------------------
Net cash provided by investing activities 15,712 4,248
-----------------------------
FINANCING ACTIVITIES
Principal payments on note payable (7,458) (7,472)
Loans from affiliate 4,550 600
Repayments of loans to affiliate (5,150) --
Cash distributions paid to limited partners -- (5,923)
Cash distributions paid to General Partner -- (312)
-----------------------------
Net cash used in financing activities (8,058) (13,107)
-----------------------------
Net increase (decrease) in cash and cash equivalents 11,790 (2,893)
Cash and cash equivalents at beginning of period 486 3,429
-----------------------------
Cash and cash equivalents at end of period $ 12,276 $ 536
=============================
Supplemental information
Interest paid $ 316 $ 813
=============================
</TABLE>
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 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 September 30, 2000 and December 31, 1999,
the statements of operations for the three months and nine months ended
September 30, 2000 and 1999, the statements of changes in partners' capital
for the period from December 31, 1998 to September 30, 2000, and the
statements of cash flows for the nine months ended September 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/A 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 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
expects to file a certificate of dissolution on behalf of the Partnership
with the Secretary of State for the State of California by December 31,
2000, and following completion of the liquidation of the Partnership, to
file a certificate of cancellation.
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 nine months ended September
30, 2000. For the nine months ended September 30, 1999, cash distributions
totaled $6.2 million. For the three months ended September 30, 1999, cash
distributions totaled $2.1 million. Cash distributions to the limited
partners of $4.0 million for the nine months ended September 30, 1999, were
deemed to be a return of capital.
A special distribution of $10.9 million will be paid during November of
2000 from asset sales in the third quarter of 2000.
4. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES
The balance due to affiliates as of September 30, 2000 included $0.1
million due to FSI and its affiliate for management fees and administrative
services. During the nine months ended September 30, 2000, the Partnership
borrowed $4.6 million from FSI and repaid FSI of $5.2 million including
$0.6 million that was borrowed during 1999. The Partnership was charged
market rate interest on the loans from FSI. Interest expense charged by FSI
was $82,000 and $96,000 for the three and nine months ended September 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 $11,000 and $12,000, were
payable as of September 30, 2000 and December 31, 1999, respectively.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 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 Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees $ 9 $ -- $ 36 $ --
Data processing and administrative
expenses 3 -- 9 2
</TABLE>
5. EQUIPMENT
The components of owned equipment were as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------------------------------------
<S> <C> <C>
Railcars $ 33,217 $ 33,572
Aircraft 21,843 42,000
Marine containers 3,495 4,453
Trailers 3,428 4,166
-------------------------------------
61,983 84,191
Less accumulated depreciation (53,906) (69,303)
-------------------------------------
Net equipment $ 8,077 $ 14,888
=====================================
</TABLE>
As of September 30, 2000, all equipment in the Partnership portfolio was on
lease, except for 96 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 $0.8 million
and $1.2 million as of September 30, 2000 and December 31, 1999,
respectively.
Capital improvements to the Partnership's equipment of $0.1 million were
made during the nine months ended September 30, 2000. Capital improvements
to the Partnership's equipment of $19,000 were made during the nine months
ended September 30, 1999.
During the nine months ended September 30, 2000, the Partnership disposed
of marine containers, trailers, railcars, and aircraft with an aggregate
net book value of $2.8 million, for aggregate proceeds of $12.5 million.
During the nine months ended September 30, 1999, the Partnership disposed
of marine containers, trailers, and railcars, with an aggregate net book
value of $0.2 million, for aggregate proceeds of $0.7 million.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
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,
2000 1999
----------------------------------
<S> <C> <C>
56% interest in an entity that owned a marine vessel $ 191 $ 2,440
25% interest in a trust that owned four commercial aircraft -- 58
---------------------------------
Net investments $ 191 $ 2,498
=================================
</TABLE>
During the nine months ended September 30, 2000, the Partnership's 56%
interest in an entity that owned a marine vessel was sold for a gain of
$1.1 million. As of December 31, 1999, all jointly-owned equipment in the
Partnership's USPE portfolio was on lease.
For the nine months ended September 30, 2000, all jointly-owned equipment
was accounted for under the equity method of accounting. For the nine
months ended September 30, 1999, 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 or operated in five different segments: railcar
leasing, aircraft 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
Railcar Aircraft Vessel Container Trailer All
For the quarter ended September 30, Leasing Leasing Leasing Leasing Leasing Other(1) Total
2000
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Lease revenue $ 1,584 $ 1,227 $ -- $ 15 $ 136 $ -- $ 2,962
Interest income and other 9 1 -- -- -- 57 67
Net gain on disposition of 68 9,460 -- 23 84 -- 9,635
equipment
------------------------------------------------------------------------
Total revenues 1,661 10,688 -- 38 220 57 12,664
COSTS AND EXPENSES
Operations support 498 23 -- 1 60 9 591
Depreciation and amortization 403 696 -- 17 60 (1) 1,175
Interest expense -- -- -- -- -- 39 39
Management fees 105 47 -- -- 8 -- 160
General and administrative expenses 51 58 -- 1 28 183 321
Loss on revaluation of equipment -- -- -- -- 11 -- 11
Provision for bad debts 36 -- -- -- -- -- 36
------------------------------------------------------------------------
Total costs and expenses 1,093 824 -- 19 167 230 2,333
------------------------------------------------------------------------
Equity in net income (loss) of USPEs -- -- 1,102 -- -- -- 1,102
------------------------------------------------------------------------
Net income (loss) $ 568 $ 9,864 $ 1,102 $ 19 $ 53 $ (173) $ 11,433
========================================================================
Total assets as of September 30, 2000 $ 5,464 $ 2,078 $ 191 $ 191 $ 1,054 $ 12,285 $ 21,263
========================================================================
</TABLE>
(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.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
7. OPERATING SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
Marine Marine
Railcar Aircraft Vessel Trailer Container All
For the quarter ended September 30, Leasing Leasing Leasing Leasing Leasing Other(1) Total
1999
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Lease revenue $ 1,691 $ 1,399 $ 547 $ 192 $ 23 $ -- $ 3,852
Interest income and other -- 4 45 -- -- 31 80
Net gain (loss) on disposition of
equipment 13 -- -- (1) -- -- 12
--------------------------------------------------------------------------
Total revenues 1,704 1,403 592 191 23 31 3,944
COSTS AND EXPENSES
Operations support 506 82 334 57 2 9 990
Depreciation and amortization 441 1,194 215 89 28 15 1,982
Interest expense -- -- -- -- -- 252 252
Management fees 116 37 28 11 2 -- 194
General and administrative expenses 72 56 21 35 (1) 156 339
Provision for bad debts 19 378 -- 10 -- -- 407
--------------------------------------------------------------------------
Total costs and expenses 1,154 1,747 598 202 31 432 4,164
--------------------------------------------------------------------------
Minority interests -- -- 4 -- -- -- 4
--------------------------------------------------------------------------
Net income (loss) $ 550 $ (344) $ (2) $ (11) $ (8) $ (401) $ (216)
==========================================================================
Total assets as of September 30, 1999 $ 6,787 $ 9,424 $ 2,529 $ 2,023 $ 419 $ 583 $ 21,765
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
Marine Marine
Railcar Aircraft Vessel Container Trailer All
For the nine months ended September Leasing Leasing Leasing Leasing Leasing Other(1) Total
30, 2000
<S> <C> <C> <C> <C> <C> <C> <C>
Lease revenue $ 4,972 $ 3,654 $ -- $ 68 $ 436 $ -- $ 9,130
Interest income and other 12 3 -- -- -- 94 109
Net gain (loss) on disposition of
equipment 106 9,460 -- 36 78 -- 9,680
--------------------------------------------------------------------------
Total revenues 5,090 13,117 -- 104 514 94 18,919
COSTS AND EXPENSES
Operations support 1,411 231 -- 2 164 29 1,837
Depreciation and amortization 1,230 2,429 -- 59 184 30 3,932
Interest expense -- -- -- -- -- 306 306
Management fees 345 138 -- 3 24 -- 510
General and administrative expenses 160 151 -- 1 75 634 1,021
Loss on revaluation of equipment -- -- -- -- 202 -- 202
Recovery of bad debts (58) -- -- -- (1) (10) (69)
--------------------------------------------------------------------------
Total costs and expenses 3,088 2,949 -- 65 648 989 7,739
--------------------------------------------------------------------------
Equity in net income of USPEs -- 22 995 -- -- -- 1,017
--------------------------------------------------------------------------
Net income (loss) $ 2,002 $ 10,190 $ 995 $ 39 $ (134) $ (895) $ 12,197
==========================================================================
Total assets as of September 30, 2000 $ 5,464 $ 2,078 $ 191 $ 191 $ 1,054 $ 12,069 $ 21,263
==========================================================================
</TABLE>
(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.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
7. OPERATING SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
Marine Marine
Railcar Aircraft Vessel Trailer Container All
For the nine months ended September Leasing Leasing Leasing Leasing Leasing Other(1) Total
30, 1999 Other1
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Lease revenue $ 5,160 $ 4,418 $ 1,477 $ 515 $ 94 $ -- $ 11,664
Interest income and other -- 14 45 -- -- 135 194
Net gain (loss) on disposition of
equipment 383 2 -- (7) 100 -- 478
--------------------------------------------------------------------------
Total revenues 5,543 4,434 1,522 508 194 135 12,336
COSTS AND EXPENSES
Operations support 1,315 292 817 151 2 29 2,606
Depreciation and amortization 1,326 3,599 643 266 90 45 5,969
Interest expense -- -- -- -- -- 813 813
Management fees 356 161 74 30 5 -- 626
General and administrative expenses 195 389 44 91 3 503 1,225
Provision for (recovery of) bad 48 358 -- (21) -- -- 385
debts
--------------------------------------------------------------------------
Total costs and expenses 3,240 4,799 1,578 517 100 1,390 11,624
--------------------------------------------------------------------------
Minority interests -- -- 22 -- -- -- 22
Equity in net income of USPEs -- 1,477 -- -- -- -- 1,477
--------------------------------------------------------------------------
Net income (loss) $ 2,303 1,112 (34) (9) 94 (1,255) 2,211
==========================================================================
Total assets as of September 30, 1999 $ 6,787 $ 9,424 $ 2,529 $ 2,023 $ 419 $ 583 $ 21,765
==========================================================================
</TABLE>
(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.
8. DEBT
During the first nine months of 2000, the Partnership paid off the
outstanding note balance of $7.5 million.
9. NET INCOME (LOSS) PER WEIGHTED-AVERAGE PARTNERSHIP UNIT
Net income (loss) per weighted-average Partnership unit was computed by
dividing net income (loss) 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, 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.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 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.
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 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. No special
distributions were paid in the first nine months of 2000 and 1999. A
special distributions of $10.9 million will be paid during November of 2000
from assets sales in the third quarter of 2000.
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, 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
nine months ended September 30, 1999 and were included with the owned equipment
operations. For the three and nine months ended September 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 September 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 September 30,
2000 1999
------------------------------------
Aircraft $ 1,204 $ 1,317
Railcars 1,086 1,185
Trailers 76 135
Marine containers 14 21
Marine vessel -- 213
Aircraft: Aircraft lease revenues and direct expenses were $1.2 million and
$23,000, respectively, for the quarter ended September 30, 2000, compared to
$1.4 million and $0.1 million, respectively, during the same period of 1999.
Lease revenues decreased $0.2 million during the three months ended September
30, 2000 compared to the same period in 1999 primarily due to the sale of an
aircraft during the fourth quarter of 1999.
Railcars: Railcars lease revenues and direct expenses were $1.6 million and $0.5
million, respectively, for the quarter ended September 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
dispositions. The result of this declining fleet is a decrease in railcar
contribution.
Trailers: Trailer lease revenues and direct expenses were $0.1 million and $0.1
million, respectively, for the quarter ended September 30, 2000, compared to
$0.2 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
dispositions. The result of this declining fleet is a decrease in trailer
contribution.
Marine containers: Marine container lease revenues and direct expenses were
$15,000 and $1,000 respectively, for the quarter ended September 30, 2000,
compared to $23,000 and $2,000, respectively, during the same period of 1999.
The number of marine containers owned by the Partnership has been declining due
to 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 September 30, 2000, compared to 0.5 million and $0.3 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 for
one marine vessel. As a result of the Amendment, during the three months ended
September 30, 2000, lease revenues decreased $0.5 million and direct expenses
decreased $0.3 million when compared to the same period of 1999.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $1.7 million for the quarter ended September 30, 2000
decreased from $3.2 million for the same period of 1999. Significant variances
are explained as follows:
(i) A decrease of $0.8 million in depreciation and amortization expenses
from 1999 levels reflects a decrease of $0.6 million due to the
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) A decrease of $0.4 in bad debt expense from 1999 was due to the
General Partner's evaluation of the collectability of receivables due
from certain lessees.
(iii)A decrease of $0.2 million in interest expense was due to lower
average debt balances outstanding during the three months ended
September 30, 2000, compared to the same period in 1999.
(C) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of owned equipment for the third quarter of 2000
was $9.6 million, resulting from the disposition of marine containers, railcars,
trailers, and aircraft, with an aggregate net book value of $2.6 million, for
aggregate proceeds of $12.2 million. 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.
(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,
2000 1999
-------------------------------------
Marine vessel $ 1,102 $ --
-------------------------------------
Equity in net income of USPEs $ 1,102 $ --
=====================================
Marine vessel: The Partnership's share of revenues and expenses of marine
vessels was $1.3 million and $0.2 million, respectively, for the quarter ended
September 30, 2000, compared to zero for the same period of 1999.
During the nine months ended September 30, 2000, the Partnership's 56% interest
in an entity owing a marine vessel was sold for a gain of $1.1 million. The
increase in marine vessel revenues of $1.1 million was due to the gain from the
sale. The increase in marine vessel lease revenues of $0.2 million and
depreciation expense, direct expenses, and administrative expenses of $0.2
million during the three months ended September 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 September 30, 1999.
Aircraft, aircraft engines, and rotables: As of September 30, 2000, the
Partnership had no remaining interests in entities that owned aircraft, aircraft
engines, or rotables. The Partnership sold these two trusts during the first
quarter of 1999.
(E) Net Income (loss)
As a result of the foregoing, the Partnership had a net income of $11.4 million
in the third quarter of 2000 compared to a net loss of $0.2 million in the third
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
September 30, 2000 is not necessarily indicative of future periods.
COMPARISON OF THE PARTNERSHIP'S OPERATING RESULTS FOR THE NINE MONTHS ENDED
SEPTEMBER 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 nine months ended September 30, 2000 when compared to the
same period of 1999. The following table presents lease revenues less direct
expenses by segment (in thousands of dollars):
For the Nine Months
Ended September 30,
2000 1999
-------------------------------------
Railcars $ 3,561 $ 3,845
Aircraft 3,423 4,126
Trailers 272 364
Marine containers 66 92
Marine vessel -- 660
Railcars: Railcars lease revenues and direct expenses were $5.0 million and $1.4
million, respectively, for the nine months ended September 30, 2000, compared to
$5.2 million and $1.3 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 nine months ended September 30,
2000 than was needed during the nine months ended September 30, 1999.
Aircraft: Aircraft lease revenues and direct expenses were $3.7 million and $0.2
million, respectively, for the nine months ended September 30, 2000, compared to
$4.4 million and $0.3 million, respectively, during the same period of 1999.
Lease revenues decreased $0.7 million during the nine months ended September 30,
2000 compared to the same period in 1999 primarily due to the sale of an
aircraft during the fourth quarter of 1999.
Trailers: Trailer lease revenues and direct expenses were $0.4 million and $0.2
million, respectively, for the nine months ended September 30, 2000, compared to
$0.5 million and $0.2 million, respectively, during the same period of 1999. The
number of trailers owned by the Partnership has been declining due to
dispositions. The result of this declining fleet is a decrease in trailer
contribution.
Marine containers: Marine container lease revenues and direct expenses were $0.1
million and $2,000, respectively, for the nine months ended September 30, 2000,
compared to $0.1 million and $2,000, respectively, during the same period of
1999. The number of marine containers owned by the Partnership has been
declining due to 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 nine months ended September 30, 2000, compared to $1.5 million and $0.8
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 for
one marine vessel. As a result of the Amendment, during the nine months ended
September 30, 2000, lease revenues decreased $1.5 million and direct expenses
decreased $0.8 million when compared to the same period of 1999.
(B) Indirect Operating Expenses Related to Owned Equipment Operations
Total indirect expenses of $5.9 million for the nine months ended September 30,
2000 decreased from $9.0 million for the same period of 1999. Significant
variances are explained as follows:
(i) A decrease of $2.0 million in depreciation and amortization expenses
from 1999 levels reflects the decrease of $1.4 million due to the
disposition of certain Partnership assets during 2000 and 1999. A
decrease of $0.6 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) A decrease of $0.5 million in interest expense was due to lower
average debt balances outstanding during the nine months ended
September 30, 2000 when compared to the same period of 1999.
(iii)A decrease of $0.5 million in bad debt expense from 1999 was due to
the General Partner's evaluation of the collectability of receivables
due from certain lessees.
(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 management fees to affiliate from 1999
levels was due to lower lease revenues during the nine months ended
September 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 $9.7 million for the nine
months ended September 30, 2000, resulting from the disposition of marine
containers, trailers, railcars, and aircraft with an aggregate net book value of
$2.8 million, for aggregate proceeds of $12.5 million. 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.
(D) Equity in Net Income of Unconsolidated Special-Purpose Entities
Net income 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,
2000 1999
-----------------------------------
Marine vessel $ 997 $ --
Aircraft, aircraft engines, and rotables 20 1,477
-----------------------------------
Equity in net income of USPEs $ 1,017 $ 1,477
===================================
Marine vessel: The Partnership's share of revenues and expenses from the marine
vessel was $1.8 million and $0.8 million, respectively, for the nine months
ended September 30, 2000, compared to zero for the same period of 1999.
During the nine months ended September 30, 2000, the Partnership's 56% interest
in an entity owing a marine vessel was sold for a gain of $1.1 million. The
increase in marine vessel revenues of $1.1 million was due to the gain from the
sale. The increase in marine vessel lease revenues of $0.7 million and
depreciation expense, direct expenses, and administrative expenses of $0.8
million during the nine months ended September 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 nine months ended September 30, 1999.
Aircraft, aircraft engines, and rotables: As of September 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 $20,000 and zero, respectively, for the nine months ended September 30,
2000, compared to $1.6 million and $0.1 million, respectively, during the same
period of 1999. The $20,000 of aircraft revenues for the nine months ended
September 30, 2000 represented interest income earned during the first nine
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.
(E) Net Income
As a result of the foregoing, the Partnership had net income of $12.2 million
for the nine months ended September 30, 2000, compared to a net income of $2.2
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 nine
months ended September 30, 2000 is not necessarily indicative of future periods.
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
For the nine months ended September 30, 2000, the Partnership generated
operating cash of $4.3 million (net cash provided by operating activities, plus
non-liquidating distributions from USPEs) to meet its operating obligations.
During the nine months ended September 30, 2000, the Partnership sold wholly-and
partially-owned equipment received aggregate proceeds of $15.6 million.
During the nine months ended September 30, 2000, accounts payable and accrued
expenses decreased $0.5 million. A $0.2 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 for repairs to an aircraft in the first nine months of 2000, which
was accrued at December 31, 1999. A similar accrual was not required on
September 30, 2000.
During the nine months ended September 30, 2000, due to affiliates decreased
$0.6 million. During the nine months ended September 30, 2000, the Partnership
borrowed $4.6 million from FSI and repaid $5.2 million including $0.6 million
that was borrowed as of December 31, 1999.
During the nine months ended September 30, 2000, lessee deposits and reserves
for repairs decreased $1.3 million. A $0.9 million decrease in reserves for
repairs resulted from the sale of two aircraft. A $0.4 million decrease in
prepaid lease revenue was due to fewer lessees prepaying future lease revenue at
September 30, 2000 compared to December 31, 1999.
PLM Financial Services, Inc. (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.
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 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 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 nine months ended September
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. According to the Association of American Railroads, railcar loadings for
the first nine months of 2000 are 0.7% ahead of the railcar loadings for
the same period of 1999. Some commodity groups are behind last year's
loading numbers. While our utilization rates remain fairly high, we are
experiencing downward pressure on rental rates. This translates into lower
contributions 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 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 nine months ended September 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.
(this space is intentionally left blank)
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)
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 7, 2000 By: /s/ Richard K Brock
Richard K Brock
Vice President and
Chief Financial Officer
