UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1997.
[ ] 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
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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)
ASSETS
March 31, December 31,
1997 1996
----------------------------------
Equipment held for operating leases, at cost $ 135,708 $ 136,670
Less accumulated depreciation (81,433 ) (78,607 )
---------------------------------
Net equipment 54,275 58,063
Cash and cash equivalents 2,027 1,414
Restricted cash and marketable securities 6,043 5,966
Investments in unconsolidated special purpose entities 9,572 11,138
Accounts and note receivable, net of allowance for
doubtful accounts of $1,356 in 1997 and $1,381 in 1996 1,490 1,515
Prepaid expenses 46 64
Deferred charges, net of accumulated amortization of
$385 in 1997 and $800 in 1996 443 491
---------------------------------
Total assets $ 73,896 $ 78,651
=================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 1,047 $ 1,505
Due to affiliates 1,096 1,297
Note payable 39,965 40,284
Lessee deposits and reserves for repairs 7,425 7,552
---------------------------------
Total liabilities 49,533 50,638
Partners' capital:
Limited partners (9,871,073 depositary units at
March 31, 1997 and at December 31, 1996) 24,363 28,013
General Partner -- --
---------------------------------
Total partners' capital 24,363 28,013
---------------------------------
Total liabilities and partners' capital $ 73,896 $ 78,651
=================================
See accompanying notes to 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
Ended March 31,
1997 1996
---------------------------
Revenues:
Lease revenue $ 4,991 $ 4,483
Interest and other income 95 334
Net gain on disposition of equipment 90 834
--------------------------
Total revenues 5,176 5,651
Expenses:
Depreciation and amortization 3,556 2,049
Management fees to affiliate 293 201
Repairs and maintenance 1,415 639
Interest expense 796 881
Other insurance expense 45 90
Bad debt expense (25 ) 718
Marine equipment operating expenses 7 29
General and administrative expenses
to affiliates 182 148
Other general and administrative
expenses 144 245
--------------------------
Total expenses 6,413 5,000
Equity in net income (loss) of unconsolidated special purpose entities 185 (68 )
--------------------------
Net income (loss) $ (1,052 ) $ 583
==========================
Partners' share of net income (loss) :
Limited partners $ (1,182 ) $ 374
General Partner 130 209
--------------------------
Total $ (1,052 ) $ 583
==========================
Net income (loss) per weighted-average depositary unit
(9,871,073 units at March 31, 1997 and
9,879,664 units at March 31, 1996) $ (0.12 ) $ 0.04
==========================
Cash distributions $ 2,598 $ 4,169
==========================
Cash distributions per weighted-average depositary unit $ 0.25 $ 0.40
==========================
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, 1995 to March 31, 1997
(in thousands of dollars)
Limited General
Partners Partner Total
------------------------------------------------
Partners' capital at December 31, 1995 $ 30,337 $ -- $ 30,337
Net income 9,162 598 9,760
Repurchase of depositary units (120 ) -- (120 )
Cash distributions (11,366 ) (598 ) (11,964 )
-------------------------------------------------
Partners' capital at December 31, 1996 28,013 -- 28,013
Net income (loss) (1,182 ) 130 (1,052 )
Cash distributions (2,468 ) (130 ) (2,598 )
-------------------------------------------------
Partners' capital at March 31, 1997 $ 24,363 $ -- $ 24,363
=================================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
(thousands of dollars)
For the Three Months
Ended March 31,
1997 1996
-----------------------------
Cash flows from operating activities:
Net (loss) income $ (1,052 ) $ 583
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 3,556 2,049
Net gain on disposition of equipment (90 ) (834 )
Equity in net (income) loss from unconsolidated special
purpose entities (185 ) 68
Changes in operating assets and liabilities:
Accounts and note receivable, net 25 575
Prepaid expenses 18 31
Restricted cash and marketable securities (77 ) (77 )
Accounts payable and accrued expenses (458 ) (305 )
Due to affiliates (201 ) (54 )
Lessee deposits and reserves for repairs (127 ) (74 )
----------------------------
Net cash provided by operating activities 1,409 1,962
----------------------------
Investing activities:
Payments for capitalized repairs (5 ) (249 )
Payments received on sales-type lease -- 161
Proceeds from disposition of equipment 375 1,473
Distributions from unconsolidated special
purpose entities 1,751 1,646
----------------------------
----------------------------
Net cash provided by investing activities 2,121 3,031
----------------------------
Financing activities:
Cash distributions paid to General Partner (130 ) (209 )
Cash distributions paid to limited partners (2,468 ) (3,960 )
Repurchase of depositary units -- (120 )
Principal payments on notes payable (319 ) (1,249 )
----------------------------
Net cash used in financing activities (2,917 ) (5,538 )
----------------------------
Net increase (decrease) in cash and cash equivalents 613 (545 )
Cash and cash equivalents at beginning of period 1,414 3,243
----------------------------
Cash and cash equivalents at end of period $ 2,027 $ 2,698
============================
Supplemental information:
Interest paid $ 1,016 $ 815
============================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
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 March 31, 1997 and December 31, 1996; the statements of
operations and cash flows for the three months ended March 31, 1997 and 1996;
and the statement of changes in Partners' capital for the period from December
31, 1995 to March 31, 1997. 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, 1996, on file at the
Securities and Exchange Commission.
2. Reclassification
Certain amounts in the 1996 financial statements have been reclassified to
conform to the 1997 presentation.
3. Cash Distributions
Cash distributions are recorded when paid and totaled $2.6 and $4.2 million for
the three months ended March 31, 1997 and 1996, respectively.
Cash distributions to unitholders in excess of net income are considered
to represent a return of capital. Cash distributions to unitholders of $2.5
million and $3.6 million during the three months ended March 31, 1997 and 1996
were deemed to be a return of capital.
Cash distributions of $0.25 per depositary unit were declared on April
25, 1997, and are to be paid on May 15, 1997 to the unitholders of record as of
March 31, 1997. These cash distributions will amount to $2.6 million.
4. Investments in Unconsolidated Special Purpose Entities
The net investment in unconsolidated special purpose entities (USPEs)
includes the following jointly-owned equipment (and related assets and
liabilities) (in thousands):
March 31, December 31,
% Equipment 1997 1996
Ownership
- -----------------------------------------------------------------------------------------------------
56% Marine vessel $ 3,756 $ 3,999
17% Two trusts that own three commercial aircraft, two
aircraft engines, and a portfolio of aircraft rotables 3,415 4,564
17% Trust that owns six commercial aircraft 2,401 2,575
---------------------------------
Investments in unconsolidated special purpose entities $ 9,572 $ 11,138
=================================
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
5. General Partner and Transactions with Affiliates
Partnership management fees payable to an affiliate of the General Partner were
$1.1 million and $1.3 million at March 31, 1997 and December 31, 1996,
respectively. The Partnership's proportional share of USPE affiliated management
fees of $30,000 and $20,000 were payable as of March 31, 1997 and December 31,
1996, respectively. The Partnership's proportional share of USPE affiliated
management fees expense during the three months ended March 31, 1997 and 1996
was $43,000 and $67,000, respectively. The Partnership's proportional share of
USPE data processing and administrative expenses to affiliates was $11,000 and
$35,000 during the three months ended March 31, 1997 and 1996, respectively. The
Partnership's proportional share of USPE marine insurance coverage, paid to
Transportation Equipment Indemnity Company, Ltd. (TEI), was $27,000 during the
three months ended March 31, 1997 and 1996. TEI is an affiliate of the General
Partner.
6. Equipment
Owned equipment held for operating leases is stated at cost.
The components of owned equipment are as follows (in thousands):
March 31, December 31,
1997 1996
-------------------------------------
Equipment held for operating leases:
Rail equipment $ 34,909 $ 35,733
Marine containers 13,008 13,146
Aircraft and aircraft engines 70,615 70,615
Trailers 7,510 7,510
Mobile offshore drilling unit 9,666 9,666
------------------------------------
135,708 136,670
Less accumulated depreciation (81,433 ) (78,607 )
------------------------------------
====================================
Net equipment $ 54,275 $ 58,063
====================================
As of March 31, 1997, all equipment in the Partnership portfolio was
either on lease or operating in PLM-affiliated short-term trailer rental
facilities, with the exception of 32 railcars and 28 marine containers with an
aggregate carrying value of $0.3 million. As of December 31, 1996, all equipment
in the Partnership portfolio was either on lease or operating in PLM-affiliated
short-term rental facilities, with the exception of 1 aircraft, 32 marine
containers, and 67 railcars with an aggregate carrying value of $4.3 million.
During the three months ended March 31, 1997, the Partnership sold or
disposed of marine containers and railcars with an aggregate net book value of
$0.3 million for aggregate proceeds of $0.4 million. During the three months
ended March 31, 1996, the Partnership sold or disposed of marine containers,
railcars, and trailers with an aggregate net book value of $0.6 million for
combined proceeds of $1.5 million.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Comparison of the Partnership's Operating Results for the Three Months
Ended March 31, 1997 and 1996
(A) Owned Equipment Operations
Lease revenues less direct expenses (repairs and maintenance, marine equipment
operating expense, and asset-specific insurance) on owned equipment decreased
for the quarter ended March 31, 1997 when compared to the same period of 1996.
The following table presents results by owned equipment type (in thousands):
For the Three months
Ended March 31,
----------------------------------
1997 1996
----------------------------------
Aircraft and aircraft engines $ 904 $ 1,074
Marine vessels (4 ) 395
Trailers 400 411
Rail equipment 1,533 1,465
Marine containers 301 418
Mobile offshore drilling unit 398 --
Aircraft: Aircraft lease revenues and direct expenses were $1.9 million and $1.0
million, respectively, for the quarter ended March 31, 1997, compared to $1.1
million and $60,000, respectively, during the same period of 1996. The decrease
in contribution was due to $1.0 million in repairs on one aircraft to prepare it
for sale or re-lease.
Marine vessels: Marine vessel lease revenues and direct expenses were zero and
$4,000, respectively, for the quarter ended March 31, 1997, compared to $0.5
million and $0.1 million, respectively, during the same period of 1996. The
decrease in contribution was due to the sale of all marine vessels during 1996.
Trailers: Trailer lease revenues and direct expenses were $0.5 million and
$66,000, respectively, for the quarter ended March 31, 1997, compared to $0.5
million and $61,000, respectively, during the same period of 1996. The decrease
in contribution was due to higher repair and maintenance expenses in the first
quarter of 1997, as compared to the same period of 1996;
Rail equipment: Railcar lease revenues and direct expenses were $1.9 million and
$0.3 million, respectively, for the quarter ended March 31, 1997, compared to
$2.0 million and $0.5 million, respectively, during the same period of 1996. The
increase in railcar contribution resulted from running repairs required on
certain railcars in the fleet during the first quarter of 1996 that were not
needed during the first quarter of 1997; this increase was offset by a decrease
in revenue due to the disposition of equipment during 1996.
Marine containers: Marine container lease revenues and direct expenses were $0.3
million and $3,000, respectively, for the quarter ended March 31, 1997, compared
to $0.4 million and $3,000, respectively, during the same period of 1996. The
number of marine containers owned by the Partnership has been declining due to
sales and dispositions. The result of this declining fleet is a decrease in
marine container contribution.
Mobile offshore drilling unit: Mobile offshore drilling unit lease revenues and
direct expenses were $0.4 million and $7,000, respectively, for the quarter
ended March 31, 1997. The Partnership acquired and placed into lease service one
mobile offshore drilling unit in the third quarter of 1996.
(B) Indirect Operating Expenses Related to Owned Equipment Operations
Total indirect expenses of $4.9 million for the quarter ended March 31, 1997
increased from $4.2 million for the same period of 1996. The variance is
explained as follows:
(a) An increase of $1.5 million in depreciation and amortization expense
from 1996 levels reflects the Partnership's depreciation on equipment purchased
in 1996, which was offset by the sale or disposition of certain Partnership
assets during the first quarter of 1997 and during 1996 and by the Partnership's
use of the double-declining balance method of depreciation;
(b) An increase of $0.1 million in management fees expense was due to
higher lease revenues in the first quarter of 1997, when compared to the first
quarter of 1996;
(c) A decrease of $0.7 million in bad debt expense primarily reflects the
Partnership's evaluation of collectibility of certain receivable balances;
(d) A decrease of $0.1 million in interest expense was due to the paydown
of debt principal based on the sale of assets, as required by the Partnership's
loan agreement;
(e) A decrease of $0.1 million in general and administrative expense was
due to a decrease in accounting and administrative expenses.
(C) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of owned equipment for the first quarter of 1997
was $90,000, resulting from the disposition of marine containers and railcars
with an aggregate net book value of $0.3 million for aggregate proceeds of $0.4
million. The net gain of $0.8 million in the first quarter of 1996 resulted from
the disposition of marine containers, railcars, and three trailers with an
aggregate net book value of $0.7 million for aggregate proceeds of $1.5 million.
(D) Interest and Other Income
Interest and other income decreased by $0.2 million for the quarter ended March
31, 1997, compared to 1996, primarily because no finance lease income was earned
in the first quarter of 1997, as compared to $0.2 million of finance lease
income earned in the first quarter of 1996. The charterer exercised his option
during the third quarter of 1996 to buy the marine vessel that was under the
finance lease.
(E) Equity in Net Income (Loss) of Unconsolidated Special Purpose Entities
Equity in net income (loss) of unconsolidated special purpose entities
represents the net income (loss) generated from the operation of jointly-owned
assets accounted for under the equity method.
For the Three Months
Ended March 31,
----------------------------------
1997 1996
----------------------------------
Aircraft, aircraft engines and rotables $ 216 $ 83
Marine vessels (31 ) (147 )
Mobile offshore drilling unit -- (4 )
=====================================
Equity in net income (loss) $ 185 $ (68 )
=====================================
Aircraft and aircraft engines and rotables: The Partnership's share of aircraft
revenues and expenses was $0.7 million and $0.5 million, respectively, for the
quarter ended March 31, 1997, compared to $0.8 million and $0.7 million,
respectively, during the same period of 1996. As of March 31, 1997, the
Partnership had a partial beneficial interest in three trusts that hold nine
commercial aircraft, two aircraft engines, and a package of aircraft rotables.
The increase in contribution was due to a lower depreciation expense, and was
partially offset by a decrease in revenue due to the liquidation of the
Partnership's 50% investment in an aircraft engine as the result of the General
Partner's sale of the asset in the third quarter of 1996.
Marine vessels: The Partnership's share of revenues and expenses of marine
vessels was $0.3 million and $0.4 million, respectively, for the quarter ended
March 31, 1997, compared to $0.4 million and $0.5 million, respectively, for the
same period in 1996. The decrease in loss was due to lower repair and
maintenance expenses and lower marine operating expenses for the quarter ended
March 31, 1997, when compared to the same period of 1996.
Mobile offshore drilling unit: The Partnership's share of revenues and expenses
of the mobile offshore drilling unit was $0.3 million and $0.3 million,
respectively, for the first quarter of 1996. The Partnership liquidated its 45%
investment in a mobile offshore drilling unit during 1996 as a result of the
General Partner's sale of the asset.
(F) Net Income (Loss)
The Partnership's net loss of $1.1 million in the first quarter of 1997
decreased from a net income of $0.6 million in the first quarter of 1996. The
Partnership's ability to acquire, operate, or liquidate assets; secure leases;
and re-lease those assets whose leases expire during the life of the Partnership
is subject to many factors. Therefore, the Partnership's performance for the
three months ended March 31, 1997 is not necessarily indicative of future
periods. In the first quarter of 1997, the Partnership distributed $2.5 million
to the limited partners, or $0.25 per weighted-average depositary unit.
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, maintain working capital reserves, and make cash
distributions to the limited partners.
For the three months ended March 31, 1997, the Partnership generated
sufficient operating cash (net cash provided by operating activities, plus
distributions from unconsolidated special purpose entities) to meet its
operating obligations and maintain the current level of distributions (total for
three months ended March 31, 1997 of approximately $2.6 million) to the
partners. During the three months ended March 31, 1997, the General Partner sold
owned equipment on behalf of the Partnership and realized proceeds of $0.4
million.
During the first quarter of 1997, the Partnership paid down $0.3 million of
the outstanding note balance as a result of asset sales.
Outlook for the Future
Since the Partnership is in its holding or passive liquidation phase, the
General Partner will be 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.
The Partnership intends to use cash flow from operations to satisfy its
operating requirements, pay loan principal on debt, maintain working capital
reserves, and pay cash distributions to the investors.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Credit Agreement of $41,000,000 dated as of December 13, 1994 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
PARTNERSHIP
By: PLM Financial Services, Inc.
General Partner
Date: May 13, 1997 By: /s/ David Davis
---------------
David J. Davis
Vice President and
Corporate Controller