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, 1995.
[ ] 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 900, 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
Class Outstanding at November 14, 1995
Limited Partnership Depositary Units 9,905,673
General Partnership Units: 1
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
BALANCE SHEETS
(in thousands of dollars)
ASSETS
September 30, December 31,
1995 1994
----------------------------------
Equipment held for operating leases $ 163,095 $ 173,195
Less accumulated depreciation (92,306) (98,657)
-----------------------------------
Net equipment 70,789 74,538
Cash and cash equivalents 8,542 14,885
Restricted cash and marketable securities 1,784 5,353
Accounts and note receivable, net of allowance
for doubtful accounts of $466 in 1995
and $264 in 1994 2,424 3,276
Net investment in sales-type lease 4,670 --
Prepaid expenses 3 199
Deferred charges, net of accumulated
amortization of $2,594 in 1995 and
$2,481 in 1994 513 528
-----------------------------------
Total assets $ 88,725 $ 98,779
===================================
LIABILITIES
Liabilities:
Accounts payable and accrued expenses $ 1,744 $ 1,706
Due to affiliates 1,522 536
Notes payable 41,000 41,000
Prepaid deposits and reserves for repairs 9,656 10,786
-----------------------------------
Total liabilities 53,922 54,028
Partners' capital:
Limited Partners (9,918,773 Depositary Units at
September 30, 1995 and 9,965,473 Depositary Units at
December 31, 1994) 34,803 44,751
General Partner -- --
-----------------------------------
Total partners' capital 34,803 44,751
-----------------------------------
Total liabilities and partners' capital $ 88,725 $ 98,779
===================================
See accompanying notes to these financial
statements.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
STATEMENTS OF OPERATIONS
(in thousands of dollars except per unit amounts)
For the three months For the nine months ended
ended September 30, September 30,
1995 1994 1995 1994
--------------------------------------------------------------
Revenues:
Lease revenue $ 5,749 $ 9,679 $ 17,147 $28,144
Interest and other income 432 174 1,266 607
Net (loss) gain on disposition
of equipment 874 (56) 2,888 104
--------------------------------------------------------------
Total revenues 7,055 9,797 21,301 28,855
Expenses:
Depreciation and amortization 3,249 4,139 9,172 12,363
Management fees to affiliate 274 427 838 1,363
Repairs and maintenance 781 1,204 2,827 3,790
Interest expense 887 785 2,656 2,041
Insurance expense to affiliates 27 218 291 426
Other insurance expense 53 160 224 594
Marine equipment operating expenses 106 2,102 786 6,280
General and administrative expenses
to affiliates 177 168 563 444
Other general and administrative
expenses 253 297 768 877
Provision for bad debt expense 105 -- 290 8
Loss on revaluation of equipment -- 335 -- 335
--------------------------------------------------------------
------------------------------------------------------------
Total expenses 5,912 9,835 18,415 28,521
--------------------------------------------------------------
Net income (loss) $ 1,143 $ (38) $ 2,886 $ 334
==============================================================
Partners' share of net income (loss):
Limited Partners $ 934 $ (253) $ 2,258 $ (301)
General Partner 209 215 628 635
--------------------------------------------------------------
Total $ 1,143 $ (38) $ 2,886 $ 334
==============================================================
Net income (loss) per Depositary Unit
(9,918,773 Units at September 30, 1995 and
9,981,126 Unitsat September 30, 1994) $ 0.09 $ (0.03) $ 0.23 $ (0.03)
==============================================================
Cash distributions $ 4,176 $ 4,207 $ 12,560 $ 12,613
==============================================================
Cash distributions per
Depositary Unit $ 0.40 $ 0.40 $ 1.20 $ 1.20
==============================================================
See accompanying notes to these financial
statements.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
For the period from December 31, 1993 to September 30, 1995
(in thousands of dollars)
Limited General
Partners Partner Total
-------------------------------------------------
Partners' capital
at December 31, 1993 $ 61,500 $ -- $ 61,500
Net income (loss) (589) 841 252
Repurchase of Depositary Units (190) -- (190)
Cash Distributions (15,970) (841) (16,811)
-------------------------------------------------
Partners' capital
at December 31, 1994 44,751 -- 44,751
Net income 2,258 628 2,886
Repurchase of Depositary Units (274) -- (274)
Cash distributions (11,932) (628) (12,560)
-------------------------------------------------
Partners' capital
at September 30,1995 $ 34,803 $ -- $ 34,803
=================================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
(thousands of dollars)
For the nine months
ended September 30,
1995 1994
--------------------------
Cash flows from operating activities:
Net income $ 2,886 $ 334
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,172 12,363
Net gain on disposition of equipment (2,888) (104)
Loss on revaluation of equipment -- 335
Changes in operating assets and liabilities:
Accounts and note receivable, net 1,034 586
Prepaid expenses 196 20
Restricted cash and marketable securities 3,569 (331)
Accounts payable and accrued expenses (17) (560)
Due from (to) affiliates 986 (336)
Prepaid deposits and reserves for repairs (180) (455)
---------------------------
Net cash provided by operating activities 14,758 11,852
---------------------------
Investing activities:
Payments for purchase of equipment (9,756) --
Payments for capitalizable repairs (1,058) (338)
Payments of acquisition-related fees to affiliate (538) --
Proceeds from disposition of equipment 3,085 1,947
---------------------------
Net cash (used in) provided by investing activities (8,267) 1,609
---------------------------
Financing activities:
Cash distributions paid to partners (12,560) (12,613)
Repurchase of depositary units (274) (17)
---------------------------
Cash used in financing activities (12,834) (12,630)
---------------------------
Cash and cash equivalents:
Net (decrease) increase in cash and cash equivalents (6,343) 831
Cash and cash equivalents at beginning of period 14,885 5,763
---------------------------
Cash and cash equivalents at end of period $ 8,542 $ 6,594
===========================
Supplemental information: $ 1,914 $ 1,935
===========================
Interest paid
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
1. Opinion of Management
In the opinion of the management of PLM Financial Services, Inc. ("FSI"), 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, 1995, the statements of operations for the
three and nine months ended September 30, 1995 and 1994, and the statement of
changes in Partners' capital for the period December 31, 1993 to September 30,
1995, and the statements of cash flows for the nine months ended September 30,
1995 and 1994. Certain information and footnote 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, 1994, on file at the Securities and
Exchange Commission.
2. Reclassifications
Certain amounts in the 1994 financial statements have been reclassified to
conform with the 1995 presentation.
3. Cash Distributions
Cash distributions are recorded when paid and totaled $4.2 million for the three
months ended September 30, 1995 and 1994, and $12.6 million for the nine months
ended September 30, 1995 and 1994.
Cash distributions to unitholders in excess of net income are considered to
represent a return of capital. Cash distributions to unitholders of $11.9
million and $12 million during the nine months ended September 30, 1995, and
1994, were deemed to be a return of capital.
Cash distributions of $0.40 per Depositary Unit were declared on September 8,
1995, and are to be paid on November 15, 1995, to the Unitholders of record as
of September 30, 1995. This cash distribution will amount to $4.2 million.
4. Equipment
Equipment held for operating leases is stated at cost. The components of
equipment are as follows (in thousands):
September 30, December 31,
1995 1994
------------------------------------
Equipment held for operating leases:
Rail equipment $ 37,098 $ 38,863
Marine containers 15,484 16,797
Marine vessels 22,625 39,422
Aircraft and aircraft engines 67,582 57,863
Trailers 7,624 7,568
Mobile offshore drilling unit 12,682 12,682
------------------------------------
163,095 173,195
Less accumulated depreciation (92,306) (98,657)
------------------------------------
Net income $ 70,789 $ 74,538
====================================
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
4. Equipment (continued)
Revenues are earned by placing the equipment under operating leases which are
generally billed monthly or quarterly. Certain of the Partnership's marine
vessels and marine containers are leased to operators of utilization-type
leasing pools which include equipment owned by unaffiliated parties. In such
instances revenues received by the Partnership consist of a specified percentage
of revenues generated by leasing the equipment to sublessees, after deducting
certain direct operating expenses of the pooled equipment. Rents for railcars
are based on mileage traveled or a fixed rate; rents for all other equipment are
based on fixed rates.
As of September 30, 1995, all equipment in the Partnership portfolio was either
on lease or operating in PLM-affiliated short-term trailer rental facilities,
with the exception of seven railcars, 56 marine containers, one trailer, and two
aircraft engines. The aggregate carrying value of equipment off lease was $3.3
million at September 30, 1995. At December 31, 1994, 82 marine containers, 145
railcars and one aircraft engine were off-lease, with an aggregate carrying
value of $4.8 million.
During the nine months ended September 30, 1995, the Partnership disposed of 360
marine containers, 196 railcars, with a combined net carrying value of $1.48
million for combined proceeds of $3.1 million. Final expenses related to the
sale of one vessel in the fourth quarter of 1994 were $0.1 million.
Additionally, the Partnership entered into a sales-type lease related to one
marine vessel as fully disclosed in Footnote 5. During the nine months ended
September 30, 1994, the Partnership sold 675 marine containers, 11 railcars, 55
over-the-road dry trailers, and one aircraft with a combined net carrying value
of $1.7 million for combined proceeds $1.8 million.
During the quarter ended September 30, 1995, the Partnership purchased a partial
beneficial interest in two trusts, comprised of three commercial aircraft, two
aircraft engines, and a package of aircraft rotables for $5.0 million and paid
acquisition and lease negotiation fees of $0.28 million to an affiliate of the
General Partner. The remaining interest is owned by affiliated partnerships.
Also, during the third quarter, the Partnership purchased one aircraft for $4.3
million and paid acquisition and lease negotiation fees of $0.23 million to PLM
Transportation Equipment Corporation, a wholly-owned subsidiary of the General
Partner.
5. Investment in Sales-type Lease
On February 27, 1995, the Partnership entered into a sales-type lease for the
purpose of selling a marine vessel. The lease is structured with a four year
term commencing March 1995. The vessel will be leased on a standard bareboat
charter lease and the lessee will make monthly payments. Gross lease payments of
$5.9 million will be received over a four year period, commencing in March 1995,
with an additional balloon payment of $1.7 million due at the end of the lease
term. The lessee has the option to purchase the vessel at any time during the
four year term at a predetermined buyout price stipulated in the charter
agreement.
6. Repurchase of Depositary Units
On December 28, 1992, the Partnership, which is traded on the American Stock
Exchange under the symbol GFZ, engaged in a program to repurchase up to 250,000
Depository Units. In the nine months ended September 30, 1995, the Partnership
repurchased and canceled 46,700 Depositary Units at a cost of $0.3 million. As
of September 30, 1995, the Partnership has repurchased a cumulative total of
81,153 Depositary Units at a total cost of $0.7 million.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
7. Future Delisting of Partnership Units
The Partnership depositary units are listed and traded on the American Stock
Exchange under the symbol GFZ. Under the Internal Revenue Code ("the Code"), the
Partnership is classified as a Master Limited Partnership. The Code requires all
Master Limited Partnerships traded on a national exchange be taxed as a
corporation after December 31, 1997. Treating the Partnership as a corporation
will mean the Partnership itself will become a taxable, rather than a "flow
through" entity. As a taxable entity, the income of the Partnership will be
subject to federal taxation at both the partnership level and at the investor
level to the extent income is allocated to an investor. In order to avoid
"double" taxation, it is the intent of the General Partner to delist the
Partnership's depositary units from the American Stock Exchange prior to January
1, 1998. In this event, the Partnership's depositary units will no longer be
traded on a national stock exchange.
8. Debt
The General Partner has entered into a joint $25 million credit facility (the
"Committed Bridge Facility") on behalf of the Partnership, PLM Equipment Growth
Fund II, PLM Equipment Growth Fund IV, PLM Equipment Growth Fund V, PLM
Equipment Growth Fund VI, and PLM Equipment Growth and Income Fund VII, and
Professional Lease Management Income Fund I ("Fund I"), all affiliated
investment programs, and TEC Acquisub, Inc. ("TECAI"), an indirect wholly-owned
subsidiary of the General Partner, which may be used to provide interim
financing of up to (i)) 70% of the aggregate book value or 50% of the aggregate
net fair market value of eligible equipment owned by the Partnership or Fund I
plus (ii) 50% of unrestricted cash held by the borrower. The Committed Bridge
Facility became available on December 20, 1993 and was amended and restated on
September 27, 1995 to expire on September 30, 1996. The Committed Bridge
Facility also provides for a $5 million Letter of Credit Facility for the
eligible borrowers. Outstanding borrowings by Fund I, TECAI or PLM Equipment
Growth Funds II through VII reduce the amount available to each other under the
Committed Bridge Facility. Individual borrowings may be outstanding for no more
than 179 days, with all advances due no later than September 30, 1996. The
Committed Bridge Facility prohibits the Partnership from incurring any
additional indebtedness. Interest accrues at either the prime rate or adjusted
LIBOR plus 2.5% at the borrowers option and is set at the time of an advance of
funds. As of September 30, 1995, Fund I had $1,057,000 in outstanding borrowings
under the Committed Bridge Facility, PLM Equipment Growth Fund VI had $1,684,000
and PLM Equipment Growth & Income Fund VII had $9,569,000 and neither the
Partnership nor TECAI had any outstanding borrowings. Due to the convenants in
the senior loan agreement, the Partnership cannot access this line of credit.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(A) Results of Operations - For the nine months ending September 30,
1995 and 1994 Summary
The Partnership's operating income before depreciation, amortization, and
gain/loss on disposition of equipment declined 27% for the nine months ended
September 30, 1995, from the same period in 1994. This decline involves two
major risks that face a leasing partnership: repricing risk as leases expire,
and reinvestment risk as assets are sold. The Partnership's rig and one aircraft
experienced the effects of repricing risk upon release during the first nine
months of 1995, as market rates for these assets were substantially lower than
their previous leases. In addition, reinvestment risk adversely effected the
Partnership as the majority of proceeds from asset sales were not redeployed
during the first nine months of 1995. The General Partner expects better
opportunities in the fourth quarter and plans to redeploy proceeds at this time.
The result should enhance the operating performance of the Partnership.
(B) Financial Condition - Capital Resources, Liquidity, and Distributions
The Partnership purchased its initial equipment portfolio with capital raised
from its initial equity offering and permanent debt financing. No further
capital contributions from original partners are permitted under the terms of
the Partnership's Limited Partnership Agreement. In addition the Partnership,
under its current loan agreement, does not have the capacity to incur additional
debt. Therefore, the Partnership relies on operating cash flow to meet its
operating obligations, to make cash distributions to limited partners and
increase the Partnership's equity portfolio with any remaining available surplus
cash.
During 1994, the Partnership had two loans outstanding totaling $40.8
million which required principal payments to commence in December 1994. To
achieve the maximum return to the Partnership, the General Partner refinanced
this debt with a maturity that would more closely coincide with the liquidation
phase of the Partnership. In December, the Partnership completed the refinancing
with a new loan of $41 million with interest at 1.5% over LIBOR. Payments are
due in eleven quarterly installments of $3.7 million starting December 31, 1997.
In the second quarter of 1995, the Partnership paid down $3 million of the
outstanding loan balance. During the third quarter of 1995, the Partnership
reborrowed the $3 million to acquire additional equipment for the fund.
The General Partner has entered into a joint $25 million credit facility
(the "Committed Bridge Facility") on behalf of the Partnership, PLM Equipment
Growth Fund II, PLM Equipment Growth Fund IV, PLM Equipment Growth Fund V, PLM
Equipment Growth Fund VI, and PLM Equipment Growth & Income Fund VII, and
Professional Lease Management Income Fund I ("Fund I"), all affiliated
investment programs, and TEC Acquisub, Inc. ("TECAI"), an indirect wholly-owned
subsidiary of the General Partner, which may be used to provide interim
financing of up to (i) 70% of the aggregate book value or 50% of the aggregate
net fair market value of eligible equipment owned by the Partnership or Fund I
plus (ii) 50% of unrestricted cash held by the borrower. The Committed Bridge
Facility became available on December 20, 1993, and was amended and restated on
September 27, 1995 to expire on September 30, 1996. The Committed Bridge
Facility also provides for a $5 million Letter of Credit Facility for the
eligible borrowers. Outstanding borrowings by Fund I, TECAI or PLM Equipment
Growth Funds II through VII reduce the amount available to each other under the
Committed Bridge Facility. Individual borrowings may be outstanding for no more
than 179 days, with all advances due no later than September 30, 1996. The
Committed Bridge Facility prohibits the Partnership from incurring any
additional indebtedness. Interest accrues at either the prime rate or adjusted
LIBOR plus 2.5% at the borrowers option and is set at the time of an advance of
funds. As of September 30, 1995, Fund I had $1,057,000 in outstanding borrowings
under the Committed Bridge Facility, PLM Equipment Growth Fund VI had $1,684,000
and PLM Equipment Growth & Income Fund VII had $9,569,000 and neither the
Partnership nor TECAI had any outstanding borrowings. Due to the convenants in
the senior loan agreement, the Partnership cannot access this line of credit.
The Partnership is traded on the American Stock Exchange under the symbol
GFZ. For the past three years the Partnership has engaged in a plan to
repurchase up to 250,000 Depositary Units. For the nine months ended September
30, 1995, the Partnership repurchased 46,700 Depositary Units at a cost of $0.3
million. As of September 30, 1995, the Partnership has repurchased a cumulative
total of 81,153 Depositary Units at a total cost of $0.7 million.
(C) Future Delisting of Partnership Units
The Partnership depositary units are listed and traded on the American Stock
Exchange under the symbol GFZ. Under the Internal Revenue Code ("the Code"), the
Partnership is classified as a Master Limited Partnership. The Code requires all
Master Limited Partnerships traded on a national exchange be taxed as a
corporation after December 31, 1997. Treating the Partnership as a corporation
will mean the Partnership itself will become a taxable, rather than a "flow
through" entity. As a taxable entity, the income of the Partnership will be
subject to federal taxation at both the partnership entity level and at the
investor level to the extent income is allocated to an investor. In order to
avoid "double" taxation, it is the intent of the General Partner to delist the
Partnership depositary's units from the American Stock Exchange prior to January
1, 1998. In this event, the Partnership depositary units will no longer be
publicly traded on a national stock exchange.
Comparison of the Partnership's Operating Results for the Three Months Ended
September 30, 1995 and 1994
(A) Revenues
Total revenues of $7.1 million for the three months ended September 30, 1995,
decreased from $9.8 million for the same period in 1994.
This decrease in 1995 revenues was attributable primarily to lower lease
revenue related to equipment sales in late 1994 and off-lease equipment,
partially offset by a gain on disposition of equipment in third quarter of 1995.
(1) Lease Revenue
Total lease revenue for the third quarter of 1995 of $5.7 million
decreased from $9.7 million in 1994. The following table presents lease revenues
earned by equipment type (in thousands):
For the three months
ended September 30,
------------------------------
1995 1994
------------------------------
Marine vessels $ 930 $ 4,278
Rail equipment 2,151 2,073
Aircraft 1,349 1,983
Marine containers 534 571
Trailers 472 435
Mobile offshore drilling units 313 339
------------------------------
$ 5,749 $ 9,679
==============================
The lease revenue changes resulted primarily from:
(a) a decrease of $3.3 million in marine vessel revenue attributable to the
sale of two marine vessels in 1994, and the sale of one marine vessel during the
first quarter of 1995;
(b) declines in aircraft revenue of $0.6 million due to the off-lease
status of two aircraft engines, the sale of one aircraft in September 1994, the
sale of another aircraft in December of 1994, and the release of one other
aircraft at a lower lease rate;
(2) Interest and other income increased by $0.3 million in the third quarter of
1995 compared to 1994. This increase resulted from the interest income on the
sales-type lease, which began in March 1995.
(3) Net gain on disposition of equipment was $0.9 million in the third quarter
of 1995 from the disposition of 138 marine containers and 116 railcars, compared
to a loss of $0.1 million in the third quarter of 1994 from the disposition of
286 marine containers, 11 railcars, 55 trailers, and one aircraft.
(B) Expenses
Total expenses of $5.9 million for the three months ended September 30, 1995,
decreased from $9.8 million for the same period in 1994. The decrease was
attributable primarily to depreciation, management fees, repairs and
maintenance, and marine equipment operating expense.
(1) Direct operating expenses (defined as repairs and maintenance, insurance
expense, and marine equipment operating expenses) decreased to $1.0 million in
the third quarter of 1995 from $3.7 million in the same period in 1994. This
resulted from:
(a) a decrease of $2.0 million in marine equipment operating expenses from
the third quarter 1994, due to the sale of two marine vessels in the fourth
quarter of 1994 and the sale of one other marine vessel during the first quarter
of 1995;
(b) a decrease of $0.3 million in insurance expense to affiliates and other
insurance expense due to the sale of two marine vessels in the fourth quarter of
1994, and the sale of one other marine vessel in the first quarter of 1995;
(c) a decrease of $0.4 million in repairs and maintenance costs from 1994
levels due to lower drydock expense's and lower repairs and maintenance expenses
due to the sale of three vessels in the prior nine months;
(2) Indirect operating expenses (defined as depreciation and amortization
expense, management fees, interest expense, general and administrative expenses,
and bad debt expense) decreased to $4.9 million in the third quarter of 1995
from $5.8 million in the third quarter 1994. This change resulted primarily
from:
(a) a decrease in depreciation expense of $0.9 million from 1994 levels
reflecting the Partnership's double-declining depreciation method, and the sale
or disposition of $37.0 million, at original cost, in Partnership assets during
1994 and 1995; offset partially by $9.7 million in acquisitions in the third
quarter 1995 ;
(b) a decrease in management fees to affiliates of $0.15 million due to
lower lease revenues in 1995 as compared to 1994;
(c) an increase of $0.1 million in interest expense reflecting higher
interest rates on the Partnership's floating rate debt;
(d) an increase of $0.1 million in bad debt expenses from 1994 levels
primarily reflecting the Partnership's evaluation of receivables and
determination of uncollectible amounts.
(3) Loss on revaluation totaled $0.3 million in the third quarter of 1994, as
the carrying value of five locomotives and 77 containers were reduced to their
estimated net realizable value. No revaluation of assets was required during the
third quarter of 1995.
(C) Net Income
The Partnership's net income of $1.1 million in the third quarter of 1995,
increased from net loss of $38,000 in the third quarter of 1994. The
Partnership's ability to acquire, operate, or liquidate assets, secure leases,
and re-lease those assets whose leases expire during the duration of the
Partnership is subject to many factors, therefore, the Partnership's performance
for the nine months ended September 30, 1995 is not necessarily indicative of
future periods. In the third quarter 1995, the Partnership distributed $4.0
million to the Limited Partners, or $0.40 per Depositary Unit.
Comparison of the Partnership's Operating Results for the Nine Months Ended
September 30, 1995 and 1994
(A) Revenues
Total revenues of $21.3 million for the nine months ended September 30, 1995,
decreased from $28.9 million for the same period in 1994.
This decrease in 1995 revenues was attributable primarily to lower lease revenue
related to equipment sales in late 1994, and the first nine months of 1995
partially offset by a gain on sale of equipment in the nine months ended
September 30, 1995.
(1) Lease Revenue
Total lease revenue for the nine months ended September 30, 1995 of $17.1
million decreased from $28.1 million in 1994. The following table presents lease
revenues earned by equipment type (in thousands):
For the nine months
ended September 30,
-----------------------------------
1995 1994
-----------------------------------
Marine vessels $ 3,506 $ 12,362
Rail equipment 5,946 6,012
Aircraft 3,929 5,815
Marine containers 1,489 1,791
Trailers 1,290 1,057
Mobile offshore drilling units 987 1,107
===================================
$ 17,147 $ 28,144
===================================
The lease revenue changes resulted primarily from:
(a) a decrease of $8.9 million in marine vessel revenue attributable to the
sale of two marine vessels in 1994, and the sale of one marine vessel during the
first quarter of 1995;
(b) declines in aircraft revenue of $1.9 million due to the off-lease
status of two aircraft engines, the sale of one aircraft in September 1994, and
the sale of another aircraft in December of 1994, and the re-lease of one other
aircraft at a lower lease rate; partially offset by the acquisition of aircraft
and aircraft spares in September 1995;
(c) declines in marine container revenues of $0.3 million due primarily to
the sale and disposal of 949 containers over the last year;
(d) declines in railcar revenues of $0.1 million due to lower re-lease
rates on a fleet of 297 gondolas, the sale of five locomotives in the first
quarter of 1995, and the sale of 116 coalcars in the third quarter of 1995;
(e) declines in mobile offshore drilling unit revenues of $0.1 million due
to lower daily lease rates when compared to the same period in 1994;
(f) trailer revenues increased $0.2 million when compared to the same
period during 1994, due to the purchase of 164 trailers during the fourth
quarter of 1994;
(2) Interest and other income increased by $0.7 million in the first nine months
of 1995 compared to 1994. Interest income increased due to $0.4 million in
interest earned from the sales-type lease, which began in March 1995 in addition
to higher cash balances available for investment during 1995.
(3) Net gain on disposition of equipment was $2.9 million for the nine months
ended September 30, 1995 from the disposition of 360 marine containers, 196
railcars, and one marine vessel, compared to a gain of $104,000 in the same
period of 1994 from the disposition of 675 marine containers, 11 railcars, and
55 trailers, and one aircraft. The sale of the vessel in the first quarter of
1995 was a sales-type lease. The Partnership will receive future lease payments
totaling $5.9 million with a balloon payment of $1.7 million at the end of the
lease term.
(B) Expenses
Total expenses of $18.4 million for the nine months ended September 30, 1995,
decreased from $28.5 million for the same period in 1994. The decrease in 1995
expenses was attributable primarily to depreciation, repairs and maintenance,
management fees, and marine equipment operating expense.
(1) Direct operating expenses (defined as repairs and maintenance, insurance
expense, and marine equipment operating expenses) decreased to $4.1 million for
the nine months ended September 30, 1995 from $11.1 million in the same period
in 1994. This resulted from:
(a) a decrease of $5.5 million in marine equipment operating expenses from
the nine months ended September 30, 1994 due to the sale of two marine vessels
in 1994 and the sale of one other marine vessel during the first quarter of
1995;
(b) a decrease of $1.0 million in repairs and maintenance costs from 1994
reflects lower drydock expenses due to the sale of three vessels in the prior
nine months offset partially by repairs currently being performed on a fleet of
railcars so that they may be returned to on lease status;
(c) a decrease of $0.5 million in insurance expense to affiliates and other
insurance expense is due to the sale of two marine vessels in 1994, and an
additional marine vessel in the first quarter of 1995, partially offset by hull
and machinery and loss of hire insurance recoveries related to claims filed from
1991 to 1993;
(2) Indirect operating expenses (defined as depreciation and amortization
expense, management fees, interest expense, general and administrative expenses,
and bad debt expense) decreased to $14.3 million for the nine months ended
September 30, 1995 from $17.1 million for the same period in 1994. This change
resulted primarily from:
(a) a decrease in depreciation expense of $3.2 million from 1994 levels
reflecting the Partnership's double-declining balance depreciation method, and
the sale or disposition of Partnership's assets with original cost of $37.0
million, during 1994 and $21.3 million in the first nine months of 1995;
(b) a decrease in management fees to affiliates of $0.5 million reflecting
lower levels of lease revenues in 1995;
(c) an increase of $0.6 million in interest expense reflecting higher
interest rates at September 30, 1995;
(d) an increase of $0.3 million in bad debt expense from 1994 levels
reflecting the Partnership's evaluation of receivables and determination of
uncollectible amounts.
(3) Loss on revaluation totaled $0.3 million for the nine months ended September
30, 1994, as the carrying value of five locomotives and 77 containers were
reduced to their estimated net realizable value. No revaluation of assets was
required during the nine months ended September 30, 1995.
(C) Net Income
The Partnership's net income of $2.9 million for the nine months ended September
30, 1995, increased from net income of $0.3 million for the same period in 1994.
The Partnership's ability to acquire, operate, or liquidate assets, secure
leases, and re-lease those assets whose leases expire during the duration of the
Partnership is subject to many factors. Therefore, the Partnership's performance
in the nine months ended September 30, 1995 is not necessarily indicative of
future periods. The Partnership distributed $12.0 million to the Limited
Partners, or $1.20 per Depositary Unit in the nine months ended September 30,
1995.
Trends
Generally, Partnership performance continues to be sensitive to trends in those
industry segments in which the equipment is either subject to frequent
re-leasing activity, or is impacted by changing demand for particular equipment.
In the former case, the Partnership's trailers have been subject to softening
demand, particularly for refrigerated over-the-road units; and its rigs and
vessels have been subject to relatively low rates in essentially static markets.
In the latter case, the Partnership's 10-12 year old containers (the majority of
its container portfolio) are being retired at an increased rate as container
manufacturers step up deliveries of new containers; while demand for the
Partnership's older Stage II aircraft and engines has declined in the U.S.
market, the General Partner is remarketing such equipment abroad. Currently,
demand for Partnership equipment remains strong in the rail and over-the-road
dry van areas.
The General Partner monitors these equipment markets. In those markets
in which the cyclical nature of demand has short - to intermediate-term impact,
the General Partner expects that Partnership performance will be subject to such
market fluctuations and will vary accordingly. In those markets in which demand
for Partnership equipment has dropped for unacceptable lengths of time, the
General Partner takes appropriate action to reduce the Partnership's exposure to
such events.
The Partnership intends to use any excess cash flow after payment of
expenses, loan principal and cash distributions to acquire additional equipment
through the end of its planned reinvestment period, which ends December 31,
1996.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
$25,000,000 Warehousing Credit Agreement dated September 27, 1995
with First Union National Bank of North Carolina.
(b) Reports on Form 8-K
None.
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 13, 1995 By: /s/ David Davis
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David J. Davis
Vice President and
Corporate Controller