UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL QUARTER ENDED
MARCH 31, 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)
March 31, December 31,
2000 1999
------------------------------------
ASSETS
Equipment held for operating lease, at cost $ 83,495 $ 84,191
Less accumulated depreciation (70,115) (69,303)
------------------------------------
Net equipment 13,380 14,888
Cash and cash equivalents 265 486
Accounts receivable, net of allowance for doubtful
accounts of $1,714 in 2000 and $1,757 in 1999 824 727
Investments in unconsolidated special-purpose entities 2,339 2,498
Deferred charges, net of accumulated
amortization of $324 in 2000 and $309 in 1999 15 31
Prepaid expenses and other assets 42 60
------------------------------------
Total assets $ 16,865 $ 18,690
====================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 307 $ 786
Due to affiliates 2,466 699
Lessee deposits and reserves for repairs 1,482 1,419
Note payable 3,731 7,458
------------------------------------
Total liabilities 7,986 10,362
------------------------------------
Partners' capital:
Limited partners (9,871,073 depositary units as
of March 31, 2000 and December 31, 1999) 8,851 8,328
General Partner 28 --
------------------------------------
Total partners' capital 8,879 8,328
------------------------------------
Total liabilities and partners' capital $ 16,865 $ 18,690
====================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
(in thousands of dollars, except weighted-average unit amounts)
For the Three Months
Ended March 31,
2000 1999
---------------------------
REVENUES
Lease revenue $ 3,154 $ 3,904
Interest and other income 14 68
Net gain on disposition of equipment 37 13
---------------------------
Total revenues 3,205 3,985
---------------------------
EXPENSES
Depreciation and amortization 1,388 1,997
Repairs and maintenance 455 482
Equipment operating expenses 8 196
Insurance expense 35 80
Management fees to affiliate 179 218
Interest expense 150 316
General and administrative expenses to affiliates 113 133
Other general and administrative expenses 297 366
Recovery of bad debts (43) (9)
---------------------------
Total expenses 2,582 3,779
---------------------------
Minority interests -- 20
Equity in net income (loss) of unconsolidated
special-purpose entities (72) 1,474
---------------------------
Net income $ 551 $ 1,700
===========================
PARTNERS' SHARE OF NET INCOME
Limited partners $ 523 $ 1,596
General Partner 28 104
---------------------------
Total $ 551 $ 1,700
===========================
Net income per weighted-average depositary unit $ 0.05 $ 0.16
===========================
Cash distribution $ -- $ 2,078
===========================
Cash distribution per weighted-average depositary unit $ -- $ 0.20
===========================
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 MARCH 31, 2000
(in thousands of dollars)
Limited General
Partners Partner Total
------------------------------------------------
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 523 28 551
-------------------------------------------------
Partners' capital as of March 31, 2000 $ 8,851 $ 28 $ 8,879
=================================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
For the Three Months
Ended March 31,
2000 1999
-----------------------------
OPERATING ACTIVITIES
Net income $ 551 $ 1,700
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,388 1,997
Net gain on disposition of equipment (37) (13)
Equity in net loss (income) from unconsolidated special-purpose entities 72 (1,474)
Changes in operating assets and liabilities:
Accounts receivable, net (97) (719)
Prepaid expenses and other assets 18 (1)
Accounts payable and accrued expenses (479) (422)
Due to affiliates 17 17
Lessee deposits and reserves for repairs 63 201
Minority interests -- (15)
---------------------------
Net cash provided by operating activities 1,496 1,271
---------------------------
INVESTING ACTIVITIES
Payments for capitalized improvements -- (2)
Distributions from (additional investments in) unconsolidated special-purpose 87 (5)
entities
Distributions from liquidation of unconsolidated special-purpose entities -- 3,547
Proceeds from disposition of equipment 173 88
Due to affiliate -- 35
---------------------------
Net cash provided by investing activities 260 3,663
---------------------------
FINANCING ACTIVITIES
Principal payments on note payable (3,727) (3,584)
Payments on short-term loan from affiliate (600) --
Proceeds from short-term loan from affiliate 2,350 --
Cash distributions paid to limited partners -- (1,974)
Cash distributions paid to General Partner -- (104)
---------------------------
Net cash used in financing activities (1,977) (5,662)
---------------------------
Net decrease in cash and cash equivalents (221) (728)
Cash and cash equivalents at beginning of period 486 3,429
---------------------------
Cash and cash equivalents at end of period $ 265 $ 2,701
===========================
SUPPLEMENTAL INFORMATION
Interest paid $ 147 $ 316
===========================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 2000 and December 31, 1999, the
statements of income for the three months ended March 31, 2000 and 1999,
the statements of changes in partners' capital for the period from December
31, 1998 to March 31, 2000, and the statements of cash flows for the three
months ended March 31, 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
was no cash distribution for the three months ended March 31, 2000. Cash
distributions were $2.1 million for the three months ended March 31, 1999.
Cash distributions to limited partners in excess of net income are
considered to represent a return of capital. Cash distributions to limited
partners of $0.4 million for the three months ended March 31, 1999 was
deemed to be a return of capital.
4. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES
The balance due to affiliates as of March 31, 2000 included $0.1 million
due to FSI and its affiliate for management fees, and $2.4 million due to
due to FSI for a loan made to the Partnership. 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 USPE-affiliated management fees, of
$16,000 and $12,000, were payable as of March 31, 2000 and December 31,
1999, respectively.
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
4. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES (CONTINUED)
The Partnership's proportional share of the expenses incurred by the
unconsolidated special-purpose entities during 2000 and 1999 is listed in
the following table (in thousands of dollars):
For the Three Months
Ended March 31,
2000 1999
----------------------------
Management fees $ 10 $ --
Data processing and administrative
expenses 3 2
5. Equipment
The components of owned equipment were as follows (in thousands of
dollars):
March 31, December 31,
2000 1999
--------------------------------------
Aircraft $ 42,000 $ 42,000
Railcars 33,390 33,572
Marine containers 4,121 4,453
Trailers 3,984 4,166
--------------------------------------
83,495 84,191
Less accumulated depreciation (70,115) (69,303)
-------------------------------------
Net equipment $ 13,380 $ 14,888
=====================================
As of March 31, 2000, all equipment in the Partnership portfolio was either
on lease or operating in PLM-affiliated short-term trailer rental
facilities, except for 58 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 $1.0 million and $1.2 million as of March 31, 2000 and December 31,
1999, respectively.
No capital improvements were made during the three months ended March 31,
2000. Capital improvements to the Partnership's equipment of $2,000 were
made during the three months ended March 31, 1999.
During the three months ended March 31, 2000, 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 $0.2 million.
During the three months ended March 31, 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 $0.1 million.
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
6. INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITIES (USPES)
The net investment in USPEs included the following jointly-owned equipment
(and related assets and liabilities) (in thousands of dollars):
March 31, December 31,
2000 1999
----------------------------------
56% interest in an entity owning a marine vessel $ 2,293 $ 2,440
25% interest in a trust that owned four commercial aircraft 46 58
---------------------------------
Net investments $ 2,339 $ 2,498
=================================
As of March 31, 2000 and December 31, 1999, all jointly-owned equipment in
the Partnership's USPE portfolio was on lease.
For the three months ended March 31, 2000, all jointly-owned equipment was
accounted for under the equity method of accounting. For the three months
ended March 31, 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 primarily in five different segments: aircraft
leasing, railcar leasing, marine container leasing, trailer leasing, and
marine vessel 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):
Marine
Aircraft Railcar Container Trailer All
For the quarter Ended March 31, 2000 Leasing Leasing Leasing Leasing Other<F1>1 Total
------------------------------------ ------- ------- ------- ------- ---- -----
REVENUES
Lease revenue $ 1,205 $ 1,751 $ 32 $ 166 $ -- $ 3,154
Interest income and other -- -- -- -- 14 14
Net gain (loss) on disposition of
equipment -- 44 7 (14) -- 37
-------------------------------------------------------------
Total revenues 1,205 1,795 39 152 14 3,205
COSTS AND EXPENSES
Operations support 49 386 -- 53 10 498
Depreciation and amortization 867 420 23 63 15 1,388
Interest expense -- -- -- -- 150 150
Management fees 46 123 1 9 -- 179
General and administrative expenses 37 56 - 29 288 410
Recovery of bad debts -- (42) -- (1) -- (43)
-------------------------------------------------------------
Total costs and expenses 999 943 24 153 463 2,582
-------------------------------------------------------------
Equity in net income (loss) of USPEs 22 -- -- -- (94) (72)
-------------------------------------------------------------
Net income (loss) $ 228 $ 852 $ 15 $ (1) $ (543) $ 551
=============================================================
Total assets as of March 31, 2000 $ 6,329 $ 6,039 $ 334 $ 1,547 $ 2,616 $ 16,865
=============================================================
<FN>
<F1>
- --------------------------
1 Includes revenues and costs not identifiable to a particular segment such
as interest expense, certain amortization expenses, certain interest income
and other, operations support and general and administrative expenses. Also
includes loss from an investment in an entity owning a marine vessel.
</FN>
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
7. OPERATING SEGMENTS (CONTINUED)
Marine Marine
Aircraft Railcar Vessel Container Trailer All
For the quarter Ended March 31, 1999 Leasing Leasing Leasing Leasing Leasing Other<F1>1 Total
------------------------------------ ------- ------- ------- ------- ------- ---- -----
REVENUES
Lease revenue $ 1,509 $ 1,758 $ 459 $ 37 $ 141 $ -- $ 3,904
Interest income and other 5 -- -- -- -- 63 68
Net gain (loss) on disposition of
equipment 1 17 -- 2 (7) -- 13
---------------------------------------------------------------------------
Total revenues 1,515 1,775 459 39 134 63 3,985
COSTS AND EXPENSES
Operations support 94 350 258 -- 46 10 758
Depreciation and amortization 1,203 443 214 33 89 15 1,997
Interest expense -- -- -- -- -- 316 316
Management fees 62 121 23 2 10 -- 218
General and administrative expenses 192 66 15 2 25 199 499
Provision for (recovery of) bad (21) 46 -- -- (34) -- (9)
debts
---------------------------------------------------------------------------
Total costs and expenses 1,530 1,026 510 37 136 540 3,779
---------------------------------------------------------------------------
Minority interests -- -- 20 -- -- -- 20
Equity in net income of USPEs 1,474 -- -- -- -- -- 1,474
---------------------------------------------------------------------------
Net income (loss) $ 1,459 $ 749 $ (31 ) $ 2 $ (2 ) $ (477 )$ 1,700
===========================================================================
Total assets as of March 31, 1999 $ 12,484 $ 7,783 $ 5,232 $ 555 $ 2,143 $ 3,169 $ 31,366
===========================================================================
<FN>
<F1>
- --------------------------
1 Includes revenues and costs not identifiable to a particular segment such
as interest expense, certain amortization expenses, certain interest income
and other, operations support and general and administrative expenses.
</FN>
8. 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 months ended March 31, 2000 and 1999 was 9,871,073.
9. 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 of 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
MARCH 31, 2000
10. 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 quarter 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.
11. SUBSEQUENT EVENT
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 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.
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 MARCH 31, 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
months ended March 31, 1999 and were included with the owned equipment
operations. For the three months ended March 31, 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 March 31, 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 March 31,
2000 1999
-------------------------------
Railcars $ 1,365 $ 1,408
Aircraft 1,156 1,415
Trailers 113 95
Marine containers 32 37
Marine vessel -- 201
Railcars: Railcars lease revenues and direct expenses were $1.8 million and $0.4
million, respectively, for the quarters ended March 31, 2000 and 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
$49,000, respectively, for the quarter ended March 31, 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 March 31, 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 $0.2 million and $0.1
million, respectively, for the quarter ended March 31, 2000, compared to $0.1
million and $46,000, respectively, during the same period of 1999. The increase
in lease revenues was due to higher utilization during the first quarter of 2000
compared to the same quarter of 1999.
Marine containers: Marine container lease revenues and direct expenses were
$32,000 and $1,000, respectively, for the quarter ended March 31, 2000, compared
to $37,000 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 March 31, 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 of
one marine vessel. As a result of the Amendment, during the three months ended
March 31, 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 $2.1 million for the quarter ended March 31, 2000
decreased from $3.0 million for thesame 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 the decrease of $0.4 million due to the sale or
disposition of certain Partnership assets during 2000 and 1999, and a
decrease of $0.2 million as a 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 $0.2 million in interest expense was due to a lower
average debt outstanding during the three months ended March 31, 2000,
compared to the same period in 1999.
(iii) A $0.1 million decrease in administrative expenses was due to the
reduction of the size of the Partnership's equipment portfolio.
(C) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of owned equipment for the first quarter of 2000
was $37,000, resulting from the disposition of marine containers, railcars, and
trailers, with an aggregate net book value of $0.1 million, for aggregate
proceeds of $0.2 million. The net gain on the disposition of owned equipment for
the first quarter of 1999 was $13,000, 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.
(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 March 31,
2000 1999
--------------------------------
Aircraft, aircraft engines, and rotables $ 22 $ 1,474
Marine vessel (94) --
================================
Equity in net income (loss) of USPEs $ (72) $ 1,474
================================
Aircraft, aircraft engines, and rotables: As of March 31, 2000, the Partnership
had no remaining interest in entities that own aircraft, aircraft engines, or
rotables. The Partnership's share of aircraft revenues and expenses was $22,000
and zero, respectively, for the quarter ended March 31, 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 three months ended March 31, 2000
represented interest income earned during the first quarter of 2000 on account
receivable. The $1.6 million of aircraft revenues for the three months ended
March 31, 1999 was 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 of marine
vessels was $0.2 million and $0.3 million, respectively, for the quarter ended
March 31, 2000, compared to zero for the same period of 1999.
The increase in marine vessel lease revenues of $0.2 million and depreciation
expense, direct expenses, and administrative expenses of $0.3 million during the
three months ended March 31, 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 March 31, 1999.
(E) Net Income
As a result of the foregoing, the Partnership had a net income of $0.6 million
in the first quarter of 2000 compared to net income of $1.7 million in the first
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
March 31, 2000 is not necessarily indicative of future periods. In the first
quarter of 2000, the Partnership did not make any cash distributions.
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
For the three months ended March 31, 2000, the Partnership generated operating
cash of $1.6 million (net cash provided by operating activities, plus
non-liquidating distributions from USPEs) to meet its operating obligations.
During the three months ended March 31, 2000, the Partnership sold owned
equipment and received aggregate proceeds of $0.2 million.
During the first three months of 2000, the Partnership paid down $3.7 million of
the outstanding note balance from the proceeds of asset sales.
During the three months ended March 31, 2000, accounts payable and accrued
expenses decreased $0.5 million reflecting a decrease of $0.2 million in
accounts payable trade 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 quarter of 2000 for repairs of an aircraft
which was accrued at December 31, 1999.
During the three months ended March 31, 2000, due to affiliates increased $1.8
million. During the first three months of 2000, the Partnership paid the General
Partner of $0.6 million for a loan borrowed during the fourth quarter of 1999.
Also, during the first three months of 2000, the Partnership borrowed a total of
$2.4 million from the General Partner. The General Partner charged the
Partnership market interest rates. Total interest paid to the General Partner
during the first quarter of 2000 was $14,000.
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.
(III) EFFECTS OF YEAR 2000
To date, the Partnership has not experienced any material Year 2000 (Y2K) issues
with either its internally developed software or purchased software. In
addition, to date the Partnership has not been impacted by any Y2K problems that
may have impacted our customers and suppliers. The General Partner continues to
monitor its systems for any potential Y2K issues.
(IV) 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 2000 and
beyond, including changes in the markets for the Partnership's equipment and
changes in the regulatory environment in which that equipment operates.
Liquidation of 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. 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.
2. Depressed economic conditions in Asia have led to declining freight rates
through 1999 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.
3. Railcar loading in North America have continued to be high, however a
softening in the market is expected during 2000, which may lead 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.
(VI) FORWARD-LOOKING INFORMATION
Except for the historical information contained herein, in this Form 10-Q
contains forward-looking statements that involve risks and uncertainties, such
as statements of the Partnership's plans, objectives, expectations, and
intentions. The cautionary statements made in this Form 10-Q should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-Q. The Partnership's actual results could differ materially from
those discussed here.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposures are that of interest rate and
currency devaluation risk. The Partnership's note payable is a variable rate
debt. The Partnership estimates a one percent increase or decrease in the
Partnership's variable rate debt would result in an increase or decrease,
respectively, in interest expense of $9,000 in the second quarter of 2000. The
Partnership estimates a two percent increase or decrease in the Partnership's
variable rate debt would result in an increase or decrease, respectively, in
interest expense of $19,000 in the second quarter of 2000. The note payable is
scheduled to be paid off in the second quarter of 2000.
During the first quarter of 2000, 80% 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.
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PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
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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: May 9, 2000 By: /s/ Richard K Brock
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Richard K Brock
Vice President and
Chief Financial Officer