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, 1998
[ ] 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)
September 30, December 31,
1998 1997
------------------------------------
Assets
Equipment held for operating lease, at cost $ 98,185 $ 105,308
Less accumulated depreciation (72,363 ) (67,234 )
---------------------------------------
Net equipment 25,822 38,074
Cash and cash equivalents 4,016 4,239
Accounts receivable, net of allowance for doubtful
accounts of $1,824 in 1998 and $1,837 in 1997 954 1,316
Investments in unconsolidated special-purpose entities 5,272 9,179
Prepaid expenses and other assets 2 71
Deferred charges, net of accumulated amortization of
$371 in 1998 and $348 in 1997 161 307
---------------------------------------
Total assets $ 36,227 $ 53,186
=======================================
Liabilities and partners' capital
Liabilities:
Accounts payable and accrued expenses $ 721 $ 1,294
Due to affiliates 156 2,208
Lessee deposits and reserves for repairs 1,047 835
Note payable 18,540 29,290
---------------------------------------
Total liabilities 20,464 33,627
---------------------------------------
Partners' capital:
Limited partners (9,871,073 depositary units as
of September 30, 1998 and December 31, 1997) 15,763 19,559
General Partner -- --
---------------------------------------
Total partners' capital 15,763 19,559
---------------------------------------
Total liabilities and partners' capital $ 36,227 $ 53,186
=======================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
STATEMENTS OF OPERATIONS
(in thousands of dollars, except weighted-average unit amounts)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
----------------------------------------------------------------------------------------------------
Revenues
Lease revenue $ 3,729 $ 5,152 $ 12,286 $ 15,377
Interest and other income 34 119 148 306
Net gain on disposition of equipment 2 734 3,727 858
---------------------------------------------------------------------
Total revenues 3,765 6,005 16,161 16,541
---------------------------------------------------------------------
Expenses
Depreciation and amortization 2,322 3,544 7,129 10,644
Management fees to affiliate 216 290 723 883
Repairs and maintenance 524 570 1,825 2,855
Equipment operating expense -- 133 28 154
Interest expense 340 818 1,383 2,422
Insurance expense to affiliate -- -- (42 ) --
Other insurance expense 45 54 253 165
General and administrative expenses to affiliates 128 187 427 540
Other general and administrative expenses 171 163 489 543
Provision for bad debts 383 138 19 93
---------------------------------------------------------------------
Total expenses 4,129 5,897 12,234 18,299
---------------------------------------------------------------------
Equity in net income of unconsolidated
special-purpose entities 119 104 79 446
---------------------------------------------------------------------
Net income (loss) $ (245 ) $ 212 $ 4,006 $ (1,312)
=====================================================================
Partners' share of net income (loss)
Limited partners $ (375 ) $ 82 $ 3,616 $ (1,702)
General Partner 130 130 390 390
---------------------------------------------------------------------
Total $ (245 ) $ 212 $ 4,006 $ (1,312)
=====================================================================
Net income (loss) per weighted-average depositary
unit $ (0.04 ) $ 0.01 $ 0.37 $ (0.17)
====================================================================================================
Cash distributions $ 2,598 $ 2,598 $ 7,802 $ 7,793
=====================================================================
Cash distributions per weighted-average
depositary unit $ 0.25 $ 0.25 $ 0.75 $ 0.75
=====================================================================
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, 1996 to
September 30, 1998
(in thousands of dollars)
Limited General
Partners Partner Total
------------------------------------------------
Partners' capital as of December 31, 1996 $ 28,013 $ -- $ 28,013
Net income 1,417 520 1,937
Cash distributions (9,871) (520) (10,391)
-----------------------------------------------------
Partners' capital as of December 31, 1997 19,559 -- 19,559
Net income 3,616 390 4,006
Cash distributions (7,412) (390) (7,802)
-----------------------------------------------------
Partners' capital as of September 30, 1998 $ 15,763 $ -- $ 15,763
=====================================================
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,
1998 1997
----------------------------
Operating activities
Net income (loss) $ 4,006 $ (1,312 )
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 7,129 10,644
Net gain on disposition of equipment (3,727) (858 )
Equity in net income from unconsolidated special-purpose entities (79) (446 )
Changes in operating assets and liabilities:
Restricted cash and marketable securities -- 3
Accounts and note receivable, net 398 162
Prepaid expenses and other assets 69 61
Accounts payable and accrued expenses (573) (732 )
Due to affiliates (2,052) (652 )
Lessee deposits and reserves for repairs 212 (545 )
--------------------------------
Net cash provided by operating activities 5,383 6,325
--------------------------------
Investing activities
Payments for capitalized improvements (54) (156 )
Equipment purchased and placed in unconsolidated special-purpose entity (1,198) --
Distributions from unconsolidated special-purpose entities 2,573 2,185
Proceeds from disposition of equipment 11,625 3,140
--------------------------------
Net cash provided by investing activities 12,946 5,169
--------------------------------
Financing activities
Principal payments on note payable (10,750) (997 )
Cash distributions paid to limited partners (7,412) (7,403 )
Cash distributions paid to General Partner (390) (390 )
--------------------------------
Net cash used in financing activities (18,552) (8,790 )
--------------------------------
Net (decrease) increase in cash and cash equivalents (223) 2,704
Cash and cash equivalents at beginning of period 4,239 1,414
--------------------------------
Cash and cash equivalents at end of period $ 4,016 $ 4,118
================================
Supplemental information
Interest paid $ 1,389 $ 2,631
================================================================================
Sale proceeds in accounts receivable $ 42 $ --
================================================================================
Non-cash transfer of equipment at net book value from
unconsolidated special-purpose entity $ 2,611 $ --
================================================================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
1. Opinion of Management
In the opinion of the management of PLM Financial Services, Inc. (FSI or the
General Partner), the accompanying unaudited financial statements contain all
adjustments necessary, consisting primarily of normal recurring accruals, to
present fairly the financial position of PLM Equipment Growth Fund III (the
Partnership) as of September 30, 1998 and December 31, 1997, the statements of
operations for the three months and nine months ended September 30, 1998 and
1997, the statements of changes in partners' capital from December 31, 1996 to
September 30, 1998, and the statements of cash flows for the nine months ended
September 30, 1998 and 1997. 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, 1997, on file at the
Securities and Exchange Commission.
2. Cash Distributions
Cash distributions are recorded when paid and totaled $2.6 million and $7.8
million for the three and nine months ended September 30, 1998 and 1997,
respectively. Cash distributions to unitholders in excess of net income are
considered to represent a return of capital. Cash distributions to unitholders
of $3.8 million and $7.4 million during the nine months ended September 30, 1998
and 1997, respectively, were deemed to be a return of capital. Cash
distributions related to the results from the third quarter of 1998, of $2.6
million, will be paid during the fourth quarter of 1998.
3. Transactions with General Partner and Affiliates
The Partnership's proportional share of the affiliated expenses incurred by the
unconsolidated special-purpose entities (USPEs) during 1998 and 1997, are listed
in the following table (in thousands of dollars):
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
------------------------------------------------------------------
Management fees $ 30 $ 43 $ 91 $ 132
Data processing and administrative
expenses 8 12 35 35
Insurance expense 3 17 16 69
The Partnership's proportional share of USPE-affiliated management fees, of
$15,000 and $0.1 million, were payable as of September 30, 1998 and December 31,
1997, respectively.
Transportation Equipment Indemnity Company, Ltd. (TEI), an affiliate of the
General Partner, provided certain marine insurance coverage for the
Partnership's equipment and other insurance brokerage services during 1998 and
1997.
During 1998, the Partnership received a $46,000 loss-of-hire insurance refund
from TEI due to lower claims from the insured Partnership and other insured
affiliated partnerships.
The balance due to affiliates as of September 30, 1998 was $0.2 million due to
FSI and its affiliate for management fees. The balance due to affiliates as of
December 31, 1997 includes $0.4 million due to FSI and its affiliate for
management fees and $1.8 million due to affiliated USPEs.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
4. Equipment
Owned equipment held for operating lease is stated at cost. The components of
owned equipment held for operating leases are as follows (in thousands of
dollars):
September 30, December 31,
1998 1997
-------------------------------------
Aircraft $ 51,974 $ 46,282
Rail equipment 34,443 34,859
Marine containers 6,296 7,421
Trailers 5,472 7,080
Mobile offshore drilling unit -- 9,666
98,185 105,308
Less accumulated depreciation (72,363) (67,234)
----------------------------------------
Net equipment $ 25,822 $ 38,074
========================================
As of September 30, 1998, all equipment in the Partnership portfolio was either
on lease or operating in PLM-affiliated short-term trailer rental facilities,
with the exception of 86 rail equipment, 25 marine containers, and one aircraft
with an aggregate net book value of $2.7 million. As of December 31, 1997, all
equipment in the Partnership portfolio was either on lease or operating in
PLM-affiliated short-term rental facilities, with the exception of 28 marine
containers and 41 rail equipment with an aggregate carrying value of $0.3
million.
In the fourth quarter of 1996, the Partnership ended its reinvestment phase in
accordance with the limited partnership agreement; therefore, no equipment was
purchased during the nine months ended September 30, 1998 and 1997. Capital
improvements to the Partnership's equipment of $0.1 million and $0.2 million
were made during the nine months ended September 30, 1998 and September 30,
1997, respectively.
During the nine months ended September 30, 1998, the Partnership sold or
disposed of marine containers, trailers, rail equipment and a mobile offshore
drilling unit, with an aggregate net book value of $8.0 million, for aggregate
proceeds of $11.7 million. During the nine months ended September 30, 1997, the
Partnership sold or disposed of marine containers, trailers, rail equipment, and
an aircraft, with an aggregate net book value of $2.2 million, for aggregate
proceeds of $3.1 million.
During the nine months ended September 30, 1998, a commercial aircraft, which
was in a trust the Partnership had a 25% interest in, was transferred out of the
trust into the Partnership's owned equipment portfolio (see Note 5).
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
5. Investments in Unconsolidated Special-Purpose Entities
The net investment in unconsolidated special-purpose entities included the
following jointly-owned equipment (and related assets and liabilities) (in
thousands of dollars):
September 30, December 31,
1998 1997
--------------------------------
56% interest in an entity owning a marine vessel $ 2,954 $ 3,104
17% interest in two trusts that own three commercial aircraft, two
aircraft engines, and a portfolio of rotable components 2,206 4,021
25% interest in a trust that owned four commercial aircraft 112 2,054
-------------------------------------
Net investments $ 5,272 $ 9,179
=====================================
During the nine months ended September 30, 1998, the Partnership increased its
investment in a trust owning four commercial aircraft by funding the
installation of a hushkit on an aircraft assigned to the Partnership in the
trust for $1.2 million. In this Trust, all of the commercial aircraft except the
commercial aircraft designated to the Partnership were sold by the affiliated
programs. This aircraft, designated to the Partnership, was transferred out of
the Trust into the Partnership's owned equipment portfolio (see Note 4).
6. Net Income (Loss) Per Weighted-Average Partnership Unit
Net income (loss) per weighted-average Partnership unit was computed by dividing
net income (loss) attributable to limited partners by the weighted-average
number of Partnership units deemed outstanding during the period. The
weighted-average number of Partnership units deemed outstanding during the three
months and nine months ended September 30, 1998 and 1997 was 9,871,073.
(this space intentionally left blank)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(I) RESULTS OF OPERATIONS
Comparison of PLM Equipment Growth Fund III's (the Partnership's) Operating
Results for the Three Months Ended September 30, 1998 and 1997
(A) Owned Equipment Operations
Lease revenues less direct expenses (repairs and maintenance, equipment
operating expenses, and asset-specific insurance expenses) on owned equipment
decreased for the quarter ended September 30, 1998, compared to the same period
of 1997. The following table presents results by owned equipment type (in
thousands of dollars):
For the Three Months
Ended September 30,
1998 1997
----------------------------------------
Aircraft $ 1,592 $ 1,994
Rail equipment 1,277 1,422
Trailers 257 370
Marine containers 48 352
Mobile offshore drilling unit -- 404
Marine vessel -- (138 )
Aircraft: Aircraft lease revenues and direct expenses were $1.6 million and
$22,000, respectively, for the quarter ended September 30, 1998, compared to
$2.0 million and $40,000, respectively, during the same period of 1997. Lease
revenues decreased $0.4 million during the three months ended September 30,
1998, when compared to the same period in 1997 due to the sale of a total of two
aircraft during the third and fourth quarters of 1997, also one aircraft came
offlease during the third quarter of 1998. The decrease in lease revenue was
partially offset by the incremental lease revenue from an aircraft that was
transferred into the Partnership's owned equipment portfolio from a trust during
the second quarter of 1998.
Rail equipment: Rail equipment lease revenues and direct expenses were $1.8
million and $0.5 million, respectively, for the quarter ended September 30,
1998, compared to $1.9 million and $0.5 million, respectively, during the same
period of 1997. The decrease in rail equipment contribution was due to lower
revenues resulting from the disposition of rail equipment in 1998 and 1997, and
more rail equipment being off lease in the third quarter of 1998, compared to
the same period of 1997.
Trailers: Trailer lease revenues and direct expenses were $0.3 million and $0.1
million, respectively, for the quarter ended September 30, 1998, compared to
$0.6 million and $0.1 million, respectively, during the same period of 1997. The
number of trailers owned by the Partnership has been declining due to sales and
dispositions. The result of this declining fleet is a decrease in trailer
contribution.
Marine containers: Marine container lease revenues and direct expenses were $0.1
million and $2,000, respectively, for the quarter ended September 30, 1998,
compared to $0.4 million and $2,000, respectively, during the same period of
1997. The number of marine containers owned by the Partnership has been
declining due to sales and dispositions. The result of this declining fleet and
a decrease in utilization has been a decrease in marine container contribution.
Mobile offshore drilling unit: Mobile offshore drilling unit lease revenues and
direct expenses were zero for the quarter ended September 30, 1998, compared to
$0.4 million and $10,000, respectively, for the quarter ended September 30,
1997. The Partnership sold its mobile offshore drilling unit in June of 1998.
Marine vessel: Marine vessel lease revenues and direct expenses were zero for
the quarter ended September 30, 1998, compared to zero revenues and $0.1 million
direct expenses, respectively, during the same period of 1997. All the
Partnership's marine vessels were sold during 1996.
(B) Indirect Operating Expenses Related to Owned Equipment Operations
Total indirect expenses of $3.6 million for the quarter ended September 30, 1998
decreased from $5.1 million for the same period of 1997. Significant variances
are explained as follows:
(1) A decrease of $1.2 million in depreciation and amortization expenses
from 1997 levels reflects the sale or disposition of certain Partnership assets
during 1998 and 1997 and the Partnership's use of the double-declining balance
method of depreciation which results in greater depreciation in the first years
an asset is owned.
(2) A decrease of $0.5 million in interest expense was due to a lower
average debt outstanding during the three months ended September 30, 1998,
compared to the same quarter in 1997.
(3) An increase of $0.2 million in bad debt expense was due to the General
Partner's evaluation of the collectability of receivables due from certain
lessees.
(C) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of owned equipment for the third quarter of 1998
was $2,000, resulting from the disposition of marine containers and trailers,
with an aggregate net book value of $0.1 million, for aggregate proceeds of $0.1
million. The net gain on the disposition of owned equipment for the third
quarter of 1997 was $0.7 million, which resulted from the disposition of marine
containers, trailers, a rail equipment, and an aircraft, with an aggregate net
book value of $1.7 million, for aggregate proceeds of $2.4 million.
(D) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
For the Three Months
Ended September 30,
1998 1997
---------------------------------------
Marine vessels $ 118 $ (54)
Aircraft, aircraft engines, and rotables 1 158
---------------------------------------
Equity in net income of USPEs $ 119 $ 104
=======================================
Marine vessels: As of September 30, 1998 and 1997, the Partnership had an
interest in an entity that owns a marine vessel. The Partnership's share of
revenues and expenses of marine vessels was $0.4 million and $0.3 million,
respectively, for the quarter ended September 30, 1998, compared to $0.3 million
and $0.4 million, respectively, for the same period of 1997. The increase in
lease revenues was due to higher lease rates for the three months ended
September 30, 1998, when compared to the same quarter in 1997. The decrease in
direct expenses was due to lower marine operating expenses and the
double-declining balance method of depreciation, which results in greater
depreciation in the first years an asset is owned.
Aircraft, aircraft engines, and rotables: As of September 30, 1998 and 1997, the
Partnership had an interest in two trusts that own three commercial aircraft,
two aircraft engines, and a portfolio of aircraft rotables. As of September 30,
1997, the Partnership also had an interest in a trust that owned six commercial
aircraft. The aircraft in this trust was transferred out of the trust into the
Partnership's owned equipment portfolio in the second quarter of 1998. The
Partnership's share of aircraft revenues and expenses was $0.2 million and $0.2
million, respectively, for the quarter ended September 30, 1998, compared to
$0.6 million and $0.4 million, respectively, during the same period of 1997. The
decrease in lease revenues was due to the renewal of the leases for three
commercial aircraft, two aircraft engines, and a portfolio of aircraft rotables
at a lower rate than was in place during the same period of 1997. In addition,
the lease revenues decreased because of the aircraft that was transferred out of
a trust into the Partnership's owned equipment portfolio during the second
quarter of 1998. Depreciation and administrative expenses decreased as a result
of this transfer. The decrease in direct expenses was also due to the
double-declining balance method of depreciation, which results in greater
depreciation in the first years an asset is owned.
(E) Net Income (Loss)
As a result of the foregoing, the Partnership had a net loss of $0.2 million in
the third quarter of 1998 compared to a net income of $0.2 million in the third
quarter of 1997. The Partnership's ability to operate, or liquidate assets, and
re-lease those assets whose leases expire is subject to many factors. Therefore,
the Partnership's performance in the three months ended September 30, 1998 is
not necessarily indicative of future periods. In the third quarter of 1998, the
Partnership distributed $2.5 million to the limited partners, or $0.25 per
weighted-average depositary unit.
Comparison of the Partnership's Operating Results for the Nine Months Ended
September 30, 1998 and 1997
(A) Owned Equipment Operations
Lease revenues less direct expenses (repairs and maintenance, equipment
operating expenses, and asset-specific insurance expenses) on owned equipment
decreased for the nine months ended 1998 when compared to the same period of
1997. The following table presents results by owned equipment type (in thousands
of dollars):
For the Nine Months
Ended September 30,
1998 1997
---------------------------------------
Aircraft $ 4,866 $ 4,751
Rail equipment 3,745 4,232
Trailers 767 1,296
Mobile offshore drilling unit 737 1,198
Marine containers 212 923
Marine vessels (63) (143)
Aircraft: Aircraft lease revenues and direct expenses were $5.0 million and $0.1
million, respectively, for the nine months ended September 30, 1998, compared to
$6.0 million and $1.2 million, respectively, during the same period of 1997.
Lease revenues decreased $1.0 million during the nine months ended September 30,
1998, when compared to the same period in 1997 due to the sale of a total of two
aircraft during the third and fourth quarters of 1997, also one aircraft came
offlease during the third quarter of 1998. The decrease in lease revenue was
partially offset by the incremental lease revenue from an aircraft that was
transferred into the Partnership's owned equipment portfolio from a trust during
the second quarter of 1998. During the nine months ended September 30, 1997, the
Partnership incurred $1.2 million in repairs on one aircraft to prepare it for
re-lease; a similar expense was not needed during the same period of 1998.
Rail equipment: Rail equipment lease revenues and direct expenses were $5.4
million and $1.7 million, respectively, for the nine months ended 1998, compared
to $5.7 million and $1.5 million, respectively, during the same period of 1997.
The decrease in lease revenues was due to the disposition of rail equipment
during 1998 and 1997 and more rail equipment being off lease during the first
nine months of 1998 when compared to the first nine months of 1997. The increase
in direct expenses resulted from running repairs required on certain rail
equipment in the fleet during the first nine months of 1998 that were not needed
during the first nine months of 1997.
Trailers: Trailer lease revenues and direct expenses were $0.9 million and $0.2
million, respectively, for the nine months ended September 30, 1998, compared to
$1.5 million and $0.2 million, respectively, during the same period of 1997. The
number of trailers owned by the Partnership has been declining due to sales and
dispositions. The result of this declining fleet is a decrease in trailer
contribution.
Mobile offshore drilling unit: Mobile offshore drilling unit lease revenues and
direct expenses were $0.8 million and $19,000, respectively, for the nine months
ended September 30, 1998, compared to $1.2 million and $31,000, respectively,
for the nine months ended September 30, 1997. The decrease in mobile offshore
drilling unit contribution was due to the sale of the Partnership's mobile
offshore drilling unit in June of 1998.
Marine containers: Marine container lease revenues and direct expenses were $0.2
million and $5,000, respectively, for the nine months ended September 30, 1998,
compared to $0.9 million and $8,000, respectively, during the same period of
1997. The number of marine containers owned by the Partnership has been
declining due to sales and dispositions. The result of this declining fleet and
a decrease in utilization has been a decrease in marine container contribution.
Marine vessel: Marine vessel lease revenues and direct expenses were zero and
$0.1 million for the nine months ended September 30, 1998 and 1997. All the
Partnership's marine vessels were sold during 1996. The direct expense of $0.1
million for the nine months ended September 30, 1998 was due to additional
supplemental liability insurance charged to the Partnership for sold vessels by
the former insurance company. This expense was partially offset by loss of hire
insurance refund received during the second quarter of 1998 from Transportation
Equipment Indemnity Company, Ltd. (TEI), an affiliate of the General Partner,
due to lower claims from the insured Partnership and other insured affiliated
partnerships. The direct expense of $0.1 million for the nine months ended
September 30, 1997 was for supplemental insurance for a sold vessel.
(B) Indirect Operating Expenses Related to Owned Equipment Operations
Total indirect expenses of $10.2 million for the nine months ended September 30,
1998 decreased from $15.2 million for the same period of 1997. Significant
variances are explained as follows:
(1) A decrease in depreciation and amortization expenses of $3.5 million
from 1997 levels reflects the sale or disposition of certain Partnership assets
during 1998 and 1997 and the double-declining balance method of depreciation
which results in greater depreciation in the first years an asset is owned.
(2) A decrease of $1.0 million in interest expense was due to lower average
debt outstanding during the nine months ended September 30, 1998 when compared
to the same period of 1997.
(3) A decrease of $0.2 million in general and administrative expenses was
due to lower costs for professional services needed to collect past due
receivables due from certain nonperforming lessees and decreased administrative
costs associated with the short-term rental facilities due to decreased volume
of trailers operating in these facilities.
(4) A decrease of $0.2 million in management fees to affiliate from 1997
levels was due to lower lease revenue in 1998, compared to the same period of
1997.
(5) A decrease of $0.1 million in bad debt expense was due to the General
Partner's evaluation of the collectability of receivables due from certain
lessees.
(C) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of equipment was $3.7 million for the nine
months ended September 30, 1998, resulting from the disposition of marine
containers, trailers, rail equipment, and a mobile offshore drilling unit with
an aggregate net book value of $8.0 million, for aggregate proceeds of $11.7
million. For the nine months ended September 30, 1997, the net gain of $0.9
million resulted from the disposition of marine containers, trailers, rail
equipment, and an aircraft with an aggregate net book value of $2.2 million, for
aggregate proceeds of $3.1 million.
(D) Interest and Other Income
Interest and other income decreased by $0.2 million for the nine months ended
September 30, 1998 compared to the same period of 1997 primarily due to lower
cash balances available for investment.
(E) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
For the Nine Months
Ended September 30,
1998 1997
----------------------------------------
Aircraft, aircraft engines, and rotables $ 45 $ 588
Marine vessels 34 (142 )
Equity in net income $ 79 $ 446
===============================================================
Aircraft, aircraft engines, and rotables: As of September 30, 1998 and 1997, the
Partnership had an interest in two trusts that own three commercial aircraft,
two aircraft engines, and a portfolio of aircraft rotables. As of September 30,
1997, the Partnership also owned an interest in a trust that owned six
commercial aircraft. The aircraft in this trust was transferred out of the trust
into the Partnership's owned equipment portfolio in the second quarter of 1998.
The Partnership's share of aircraft revenues and expenses was $1.0 million and
$0.9 million, respectively, for the nine months ended September 30, 1998,
compared to $2.1 million and $1.5 million, respectively, during the same period
of 1997. The decrease in lease revenues was due to the renewal of the leases for
three commercial aircraft, two aircraft engines, and a portfolio of aircraft
rotables at a lower rate than was in place during the same period of 1997. In
addition, the lease revenues decreased because of the aircraft that was
transferred out of a trust into the Partnership's owned equipment portfolio
during the second quarter of 1998. Depreciation and administrative expenses
decreased as a result of this transfer. The decrease in direct expenses was also
due to the double-declining balance method of depreciation, which results in
greater depreciation in the first years an asset is owned.
Marine vessels: As of September 30, 1998 and 1997, the Partnership had an
interest in an entity that owns a marine vessel. The Partnership's share of
revenues and expenses in marine vessels was $1.0 million and $1.0 million for
the nine months ended September 30, 1998, compared to $1.0 million and $1.1
million, respectively, for the nine months ended September 30, 1997.
(F) Net Income (Loss)
As a result of the foregoing, the Partnership had net income of $4.0 million for
the nine months ended September 30, 1998, compared to a net loss of $1.3 million
in the same period of 1997. The Partnership's ability to operate, or liquidate
assets, and re-lease those assets whose leases expire is subject to many
factors. Therefore, the Partnership's performance in the nine months ended
September 30, 1998 is not necessarily indicative of future periods. In the nine
months ended September 30, 1998, the Partnership distributed $7.4 million to the
limited partners, or $0.75 per weighted-average depositary unit.
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(II) FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
For the nine months ended September 30, 1998, the Partnership generated
sufficient operating cash of $8.0 million (net cash provided by operating
activities, plus non-liquidating distributions from unconsolidated
special-purpose entities) to meet its operating obligations and maintain the
current level of distributions (total for nine months ended September 30, 1998
of approximately $7.8 million) to the partners.
During the nine months ended September 30, 1998, the General Partner sold
equipment on behalf of the Partnership and realized proceeds of $11.7 million of
which $11.6 million have been received.
During the first nine months of 1998, the Partnership paid down $10.8 million of
the outstanding note balance from the proceeds of asset sales.
(III) EFFECTS OF YEAR 2000
It is possible that the General Partner's currently installed computer systems,
software products and other business systems, or the Partnership's vendors,
service providers and customers, working either alone or in conjunction with
other software or systems, may not accept input of, store, manipulate and output
dates on or after January 1, 2000 without error or interruption (a problem
commonly known as the "Year 2000" problem). As the Partnership relies
substantially on the General Partner's software systems, applications and
control devices in operating and monitoring significant aspects of its business,
any Year 2000 problem suffered by the General Partner could have a material
adverse effect on the Partnership's business, financial condition and results of
operations.
The General Partner has established a special Year 2000 oversight committee to
review the impact of Year 2000 issues on its software products and other
business systems in order to determine whether such systems will retain
functionality after December 31, 1999. The General Partner (a) is currently
integrating Year 2000 compliant programming code into its existing internally
customized and internally developed transaction processing software systems and
(b) the General Partner's accounting and asset management software systems have
either already been made Year 2000 compliant or Year 2000 compliant upgrades of
such systems are planned to be implemented by the General Partner before the end
of fiscal 1999. Although the General Partner believes that its Year 2000
compliance program can be completed by the beginning of 1999, there can be no
assurance that the compliance program will be completed by that date. To date,
the costs incurred and allocated to the Partnership to become Year 2000
compliant have not been material. In addition, the General Partner believes the
future costs allocable to the Partnership to become Year 2000 compliant will not
be material.
Some risks associated with the Year 2000 problem are beyond the ability of the
Partnership to control, including the extent to which third parties can address
the Year 2000 problem. The General Partner has begun to communicate with
vendors, services providers and customers in order to assess the Year 2000
compliance readiness of such parties and the extent to which the Partnership is
vulnerable to any third-party Year 2000 issues. There can be no assurance that
the software systems of such parties will be converted or made Year 2000
compliant in a timely manner. Any failure by the General Partner or such other
parties to make their respective systems Year 2000 compliant could have a
material adverse effect on the business, financial position and results of
operations of the Partnership. The General Partner will make an ongoing effort
to recognize and evaluate potential exposure relating to third-party Year 2000
non-compliance and will develop a contingency plan if the General Partner
determines, or is unable to determine, that third-party non-compliance would
have a material adverse effect on the Partnership's business, financial position
or results of operation.
(IV) ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued two new
statements: SFAS No. 130, "Reporting Comprehensive Income," which requires
enterprises to report, by major component and in total, all changes in equity
from nonowner sources; and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for a public company's operating segments and related
disclosures about its products, services, geographic areas, and major customers.
Both statements are effective for the Partnership's fiscal year ended December
31, 1998, with earlier application permitted. The effect of adoption of these
statements will be limited to the form and content of the Partnership's
disclosures and will not impact the Partnership's results of operations, cash
flow, or financial position.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an entity
recognize those items as assets or liabilities in the statement of financial
position and measure them at fair value. This statement is effective for all
quarters of fiscal years beginning after June 15, 1999. As of September 30,
1998, the General Partner is reviewing the effect this standard will have on the
Partnership's financial statements.
(V) OUTLOOK FOR THE FUTURE
Since the Partnership is in its holding or passive liquidation phase through
December 31, 1998, 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 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.
(VI) FORWARD-LOOKING INFORMATION
Except for the historical information contained herein, the discussion 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.
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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.
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 5, 1998 By: /s/ Richard K Brock
-------------------
Richard K Brock
Vice President and
Corporate Controller