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 June 30, 2001
[ ] 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.)
120 Montgomery Street
Suite 1350, San Francisco, CA 94104
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (415) 445-3201
-----------------------
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)
June 30, December 31,
2001 2000
------------------------------------
ASSETS
Equipment held for operating lease, at cost $ 39,018 $ 40,028
Less accumulated depreciation (34,256 ) (34,361)
-----------------------------------
4,762 5,667
Equipment held for sale -- 1,703
-----------------------------------
Net equipment 4,762 7,370
Cash and cash equivalents 8,259 1,832
Restricted cash -- 125
Accounts receivable, net of allowance for doubtful
accounts of $551 in 2001 and $455 in 2000 314 591
Investments in unconsolidated special-purpose entity -- 76
Prepaid expenses and other assets 45 43
-----------------------------------
Total assets $ 13,380 $ 10,037
===================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 311 $ 462
Due to affiliates 68 72
Lessee deposits and reserves for repairs 8 187
-----------------------------------
Total liabilities 387 721
-----------------------------------
Partners' capital:
Limited partners (9,871,210 depositary units as
of June 30, 2001 and December 31, 2000) 12,993 9,316
General Partner -- --
-----------------------------------
Total partners' capital 12,993 9,316
-----------------------------------
Total liabilities and partners' capital $ 13,380 $ 10,037
===================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
STATEMENTS OF INCOME
(in thousands of dollars, except weighted-average unit amounts)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2001 2000 2001 2000
---------------------------- ---------------------------
REVENUES
Lease revenue $ 1,705 $ 3,014 $ 3,675 $ 6,168
Interest and other income 116 28 169 42
Net gain on disposition of equipment 142 8 3,984 45
---------------------------- ---------------------------
Total revenues 1,963 3,050 7,828 6,255
---------------------------- ---------------------------
EXPENSES
Depreciation and amortization 434 1,369 1,035 2,757
Repairs and maintenance 531 706 1,091 1,161
Equipment operating expenses 10 8 18 16
Insurance expense 25 34 96 69
Management fees to affiliate 116 171 235 350
Interest expense -- 117 -- 267
General and administrative expenses to affiliates 86 91 250 204
Other general and administrative expenses 268 199 697 496
Loss on revaluation of equipment -- 191 -- 191
Provision for (recovery of) bad debts 66 (62) 96 (105)
---------------------------- ---------------------------
Total expenses 1,536 2,824 3,518 5,406
---------------------------- ---------------------------
Equity in net loss of unconsolidated
special-purpose entities -- (13) (10 ) (85)
---------------------------- ---------------------------
Net income $ 427 $ 213 $ 4,300 764
============================ ===========================
PARTNERS' SHARE OF NET INCOME
Limited partners $ 396 $ 213 $ 4,269 $ 764
General Partner 31 -- 31 --
----------------------------
---------------------------
Total $ 427 $ 213 $ 4,300 $ 764
============================ ===========================
Limited partners net income per weighted-average
depositary unit $ 0.04 $ 0.02 $ 0.43 $ 0.08
============================ ===========================
Cash distribution $ 623 $ -- $ 623 $ --
============================ ===========================
Cash distribution per weighted-average
depositary unit $ 0.06 $ -- $ 0.06 $ --
============================ ===========================
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, 1999 to June 30, 2001
(in thousands of dollars)
Limited General
Partners Partner Total
-------------------------------------------------
Partners' capital as of December 31, 1999 $ 8,328 $ -- $ 8,328
Net income 11,353 545 11,898
Cash distribution (10,365) (545) (10,910)
------------------------------------------------
Partners' capital as of December 31, 2000 9,316 -- 9,316
Net income 4,269 31 4,300
Cash distribution (592) (31) (623)
------------------------------------------------
Partners' capital as of June 30, 2001 $ 12,993 $ -- $ 12,993
================================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
For the Six Months
Ended June 30,
2001 2000
-----------------------------
OPERATING ACTIVITIES
Net income $ 4,300 $ 764
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,035 2,757
Loss on revaluation of equipment -- 191
Net gain on disposition of equipment (3,984) (45)
Equity in net loss from unconsolidated special-purpose entities 10 85
Changes in operating assets and liabilities:
Accounts receivable, net 277 96
Prepaid expenses and other assets (2) 34
Restricted cash 125 --
Accounts payable and accrued expenses (151) (653)
Due to affiliates (4) 14
Lessee deposits and reserves for repairs (179) 250
-----------------------------
Net cash provided by operating activities 1,427 3,493
-----------------------------
INVESTING ACTIVITIES
Payments for capitalized improvements (54) (11)
Distributions from unconsolidated special-purpose entities 66 178
Distributions from liquidation of unconsolidated special-purpose entity -- --
Proceeds from disposition of equipment 5,611 206
-----------------------------
Net cash provided by investing activities 5,623 373
-----------------------------
FINANCING ACTIVITIES
Principal payments on note payable -- (7,458)
Due from affiliates -- 3,950
Cash distributions paid to limited partners (592) --
Cash distributions paid to General Partner (31) --
-----------------------------
Net cash used in financing activities (623) (3,508)
-----------------------------
Net increase in cash and cash equivalents 6,427 358
Cash and cash equivalents at beginning of period 1,832 486
-----------------------------
Cash and cash equivalents at end of period $ 8,259 $ 844
=============================
SUPPLEMENTAL INFORMATION
Interest paid $ -- $ 220
=============================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 2001
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 June 30, 2001 and December 31, 2000, the
statements of income for the three months and six months ended June 30,
2001 and 2000, the statements of changes in partners' capital for the
period from December 31, 1999 to June 30, 2001, and the statements of cash
flows for the six months ended June 30, 2001 and 2000. 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, 2000, on file at the Securities and
Exchange Commission.
2. SCHEDULE OF PARTNERSHIP PHASES
The Partnership, in accordance with its limited partnership agreement,
entered its liquidation phase on January 1, 2000 and has commenced an
orderly liquidation of the Partnership's assets. During the liquidation
phase, the Partnership's assets will continue to be reported at the lower
of carrying amount or fair value less cost to sell. The General Partner
filed a certificate of dissolution on behalf of the Partnership with the
Secretary of State for the State of California on December 31, 2000, and
following completion of the liquidation of the Partnership which is
anticipated to occur in 2001, will file a certificate of cancellation.
3. CASH DISTRIBUTIONS
Cash distributions are recorded when paid and may include amounts in excess
of net income that are considered to represent a return of capital. For the
three and six months ended June 30, 2001, cash distributions were $0.6
million. There were no cash distributions for the three and six months
ended June 30, 2000. None of the cash distributions in the six months ended
June 30, 2001 were considered a return of capital.
4. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES
The balance due to affiliates as of June 30, 2001 and December 31, 2000
included $0.1 million due to FSI and its affiliate for management fees and
administrative expenses.
There was no Partnership's proportional share of USPE-affiliated management
fees payable as of June 30, 2001. The Partnership's proportional share of
USPE-affiliated management fees payable as of December 31, 2000 was
$10,000.
The Partnership's proportional share of the affiliated expenses incurred by
the unconsolidated special-purpose entities during 2001 and 2000 is listed
in the following table (in thousands of dollars):
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2001 2000 2001 2000
-------------------------------------------------------------
Management fees $ -- $ 16 $ -- $ 27
Data processing and administrative
expenses -- 2 -- 6
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 2001
5. EQUIPMENT
The components of owned equipment were as follows (in thousands of
dollars):
June 30, December 31,
2001 2000
--------------------------------------
Rail equipment $ 32,855 $ 33,370
Trailers 3,240 3,428
Marine containers 2,923 3,230
-------------------------------------
39,018 40,028
Less accumulated depreciation (34,256) (34,361)
-------------------------------------
4,762 5,667
Equipment held for sale -- 1,703
-------------------------------------
Net equipment $ 4,762 $ 7,370
=====================================
As of June 30, 2001, all equipment in the Partnership portfolio was on
lease except for 77 railcars. As of December 31, 2000, all owned equipment
in the Partnership portfolio was on lease except for 88 railcars, 25
trailers, and an aircraft. The net book value of the equipment off lease
was $0.3 million and $0.6 million as of June 30, 2001 and December 31,
2000, respectively.
Capital improvements to the Partnership's equipment of $54,000 were made
during the six months ended June 30, 2001. Capital improvements to the
Partnership's equipment of $11,000 were made during the six months ended
June 30, 2000.
During the six months ended June 30, 2001, the Partnership sold or disposed
of aircraft, marine containers, trailers, and railcars, with an aggregate
net book value of $1.6 million, for aggregate proceeds of $5.6 million. The
aircraft was reported as equipment held for sale as of December 31, 2000.
During the six months ended June 30, 2000, the Partnership disposed of
marine containers, trailers, and railcars, with an aggregate net book value
of $0.2 million, for aggregate proceeds of $0.2 million.
During the six months ended June 30, 2000, the Partnership reduced the
carrying value of refrigerated and dry trailers by $0.2 million to the
equipment's estimated realizable value. There were no revaluations of
equipment required in the six months ended June 30, 2001.
6. INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITY
The net investment in USPE's included the following jointly-owned equipment
(and related assets and liabilities) (in thousands of dollars):
June 30, December 31,
2001 2000
----------------------------------
56% interest in an entity that owned a marine vessel $ -- $ 76
---------------------------------
Net investments $ -- $ 76
=================================
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 2001
7. OPERATING SEGMENTS
The Partnership operates or operated in five different segments: aircraft
leasing, railcar leasing, marine vessel leasing, marine container leasing,
and trailer leasing. Each equipment leasing segment engages in short-term
and mid-term operating leases to a variety of customers.
The following tables present a summary of the operating segments (in
thousands of dollars):
Marine
Aircraft Railcar Container Trailer
For the quarter ended June 30, 2001 Leasing Leasing Leasing Leasing All Other(1) Total
----------------------------------- ------- ------- ------- ------- --------- -----
REVENUES
Lease revenue $ -- $ 1,598 $ 11 $ 96 $ -- $ 1,705
Interest income and other 33 -- -- -- 83 116
Net gain on disposition of
equipment -- 134 8 -- -- 142
-------------------------------------------------------------
Total revenues 33 1,732 19 96 83 1,963
COSTS AND EXPENSES
Operations support 2 492 -- 55 17 566
Depreciation and amortization -- 393 7 34 -- 434
Management fees 2 109 -- 5 -- 116
General and administrative expenses 68 78 -- 18 190 354
Provision for bad debts -- 66 -- -- -- 66
-------------------------------------------------------------
Total costs and expenses 72 1,138 7 112 207 1,536
-------------------------------------------------------------
-------------------------------------------------------------
Net income (loss) $ (39 )$ 594 $ 12 $ (16) $ (124 )$ 427
=============================================================
Total assets as of June 30, 2001 $ -- $ 4,096 $ 119 $ 861 $ 8,304 $ 13,380
=============================================================
Marine Marine
Aircraft Railcar Vessel Container Trailer
For the quarter ended June 30, 2000 Leasing Leasing Leasing Leasing Leasing All Other(1) Total
----------------------------------- ------- ------- ------- ------- ------- --------- -----
REVENUES
Lease revenue $ 1,222 $ 1,637 $ -- $ 21 $ 134 $ -- $ 3,014
Interest income and other 2 3 -- -- -- 23 28
Net gain (loss) on disposition of
equipment -- (6) -- 6 8 -- 8
------------------------------------------------------------------------
Total revenues 1,224 1,634 -- 27 142 23 3,050
COSTS AND EXPENSES
Operations support 159 527 -- 1 51 10 748
Depreciation and amortization 866 407 -- 19 61 16 1,369
Interest expense -- -- -- -- -- 117 117
Management fees 45 117 -- 2 7 -- 171
General and administrative expenses 56 53 -- -- 18 163 290
Loss on revaluation of equipment -- -- -- -- 191 -- 191
Recovery of bad debts -- (52) -- -- -- (10) (62)
------------------------------------------------------------------------
Total costs and expenses 1,126 1,052 -- 22 328 296 2,824
------------------------------------------------------------------------
Equity in net loss of USPE's -- -- (13 ) -- -- -- (13)
------------------------------------------------------------------------
Net income (loss) $ 98 $ 582 $ (13) $ 5 $ (186) $ (273) $ 213
========================================================================
Total assets as of June 30, 2000 $ 5,419 $ 5,522 $ 2,199 $ 269 $ 1,437 $ 902 $ 15,748
========================================================================
(1) Includes interest income and costs not identifiable to a particular segment
such as interest and amortization expense and certain operations support
and general and administrative expenses.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 2001
7. OPERATING SEGMENTS (continued)
Marine Marine
Aircraft Railcar Vessel Container Trailer
For the six months ended June 30, Leasing Leasing Leasing Leasing Leasing All Other(1) Total
---------------------------------- ------- ------- ------- ------- ------- --------- -----
2001
----
REVENUES
Lease revenue $ 185 $ 3,278 $ -- $ 23 $ 189 $ -- $ 3,675
Interest income and other 39 -- -- -- -- 130 169
Net gain on disposition of
equipment 3,699 224 -- 40 21 -- 3,984
---------------------------------------------------------------------------
Total revenues 3,923 3,502 -- 63 210 130 7,828
COSTS AND EXPENSES
Operations support 27 1,001 -- -- 100 77 1,205
Depreciation and amortization 151 788 -- 16 80 -- 1,035
Management fees 4 220 -- 1 10 -- 235
General and administrative expenses 215 130 -- -- 38 564 947
Provision for bad debts -- 96 -- -- -- -- 96
---------------------------------------------------------------------------
Total costs and expenses 397 2,235 -- 17 228 641 3,518
---------------------------------------------------------------------------
Equity in net loss of USPE's -- -- (10) -- -- -- (10)
---------------------------------------------------------------------------
Net income (loss) $ 3,526 $ 1,267 $ (10) $ 46 $ (18) $ (511) $ 4,300
===========================================================================
Total assets as of June 30, 2001 $ -- $ 4,096 $ -- $ 119 $ 861 $ 8,304 $ 13,380
===========================================================================
Marine Marine
Aircraft Railcar Vessel Container Trailer
For the six months ended June 30, Leasing Leasing Leasing Leasing Leasing All Other(1) Total
---------------------------------- ------- ------- ------- ------- ------- --------- -----
2000
----
REVENUES
Lease revenue $ 2,427 $ 3,388 $ -- $ 53 $ 300 $ -- $ 6,168
Interest income and other 2 3 -- -- -- 37 42
Net gain (loss) on disposition of
equipment -- 38 -- 13 (6) -- 45
---------------------------------------------------------------------------
Total revenues 2,429 3,429 -- 66 294 37 6,255
COSTS AND EXPENSES
Operations support 208 913 -- 1 104 20 1,246
Depreciation and amortization 1,733 827 -- 42 124 31 2,757
Interest expense -- -- -- -- -- 267 267
Management fees 91 240 -- 3 16 -- 350
General and administrative expenses 93 109 -- -- 47 451 700
Loss on revaluation of equipment -- -- -- -- 191 -- 191
Recovery of bad debts -- (94) -- -- (1) (10) (105)
---------------------------------------------------------------------------
Total costs and expenses 2,125 1,995 -- 46 481 759 5,406
---------------------------------------------------------------------------
Equity in net income (loss) of USPE's 22 -- (107) -- -- -- (85)
---------------------------------------------------------------------------
Net income (loss) $ 326 $ 1,434 $ (107) $ 20 $ (187) $ (722) $ 764
===========================================================================
Total assets as of June 30, 2000 $ 5,419 $ 5,522 $ 2,199 $ 269 $ 1,437 $ 902 $ 15,748
===========================================================================
(1) Includes interest income and costs not identifiable to a particular segment
such as interest and amortization expense and certain operations support
and general and administrative expenses.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 2001
8. NET INCOME PER WEIGHTED-AVERAGE PARTNERSHIP UNIT
Net income per weighted-average Partnership unit was computed by dividing
net income attributable to limited partners by the weighted-average number
of Partnership units deemed outstanding during the period. The
weighted-average number of Partnership units deemed outstanding during the
three and six months ended June 30, 2001 and 2000 was 9,871,210.
9. CONTINGENCIES
The Partnership, together with affiliates, has initiated litigation in
various official forums in India against a defaulting Indian airline lessee
to repossess Partnership property and to recover damages for failure to pay
rent and failure to maintain such property in accordance with relevant
lease contract. The Partnership has repossessed all of its property
previously leased to such airline, and the airline has ceased operations.
In response to the Partnership's collection efforts, the airline filed
counter-claims against the Partnership in excess of the Partnership's
claims against the airline. The General Partner believes that the airline's
counterclaims are completely without merit, and the General Partner will
vigorously defend against such counterclaims. The General Partnership
believes the likelihood of an unfavorable outcome from the counterclaims is
remote.
The Partnership is involved as plantiff or defendant in various legal
actions incident to its business. Management does not believe that any of
these actions will be material to the financial condition of the
Partnership.
10. LIQUIDATION AND SPECIAL DISTRIBUTIONS
On January 1, 2000, the General Partner began the liquidation phase of the
Partnership and commenced an orderly liquidation of the Partnership assets.
The General Partner is actively marketing the remaining equipment portfolio
with the intent of maximizing sale proceeds. As sale proceeds are received
the General Partner intends to periodically declare special distributions
to distribute the sale proceeds to the partners. During the liquidation
phase of the Partnership the equipment will continue to be leased under
operating leases until sold. Operating cash flows, to the extent they
exceed Partnership expenses, will continue to be distributed. The amounts
reflected for assets and liabilities of the Partnership have not been
adjusted to reflect liquidation values. The equipment portfolio continues
to be carried at the lower of depreciated cost or fair value less cost to
dispose. Although the General Partner estimates that there will be
distributions after liquidation of assets and liabilities, the amounts
cannot be accurately determined prior to actual liquidation of the
equipment. Any excess proceeds over expected Partnership obligations will
be distributed to the Partners throughout the liquidation period. Upon
final liquidation, the Partnership will be dissolved.
The Partnership is not permitted to reinvest proceeds from sales or
liquidations of equipment. These proceeds, in excess of operational cash
requirements, are periodically paid out to limited partners in the form of
special distributions. No special distributions were paid in the first and
second quarters of 2001 and 2000. The sales and liquidations occur because
of certain damaged equipment, the determination by the General Partner that
it is the appropriate time to maximize the return on an asset through sale
of that asset, and, in some cases, the ability of the lessee to exercise
purchase options.
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 JUNE 30, 2001 AND 2000
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating and asset-specific insurance expenses) on owned equipment
decreased during the three months ended June 30, 2001 when compared to the same
period of 2000. Gains or losses from the sale of equipment, interest and other
income, and certain expenses such as depreciation and amortization and general
and administrative expenses relating to the operating segments (see Note 7 to
the financial statements), are not included in the owned equipment operation
discussion because these expenses are indirect in nature, not a result of
operations but the result of owning a portfolio of equipment. The following
table presents lease revenues less direct expenses by segment (in thousands of
dollars):
For the Three Months
Ended June 30,
2001 2000
-------------------------------------
Railcars $ 1,106 $ 1,110
Trailers 41 83
Marine containers 11 20
Aircraft (2) 1,063
Railcars: Railcar lease revenues and direct expenses were $1.6 million and $0.5
million, respectively, for the quarters ended June 30, 2001 and 2000.
Trailers: Trailer lease revenues and direct expenses were $0.1 million and $0.1
million, respectively, for the quarters ended June 30, 2001 and 2000. The
decrease in trailer contribution in the second quarter of 2001 was due to the
disposition of trailers in 2000 and 2001.
Marine containers: Marine container lease revenues and direct expenses were
$11,000 and $-0- respectively, for the quarter ended June 30, 2001, compared to
$21,000 and $1,000, respectively, during the same period of 2000. The decrease
in marine container contribution in the second quarter of 2001 was due to the
disposition of marine containers in 2000 and 2001.
Aircraft: Aircraft lease revenues and direct expenses were $0 and $2,000,
respectively, for the quarter ended June 30, 2001, compared to $1.2 million and
$0.2 million, respectively, during the same period of 2000. Lease revenues
decreased $1.2 million during the three months ended June 30, 2001 compared to
the same period in 2000 due to the sale of the Partnership's remaining
wholly-owned aircraft during the first quarter of 2001.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $1.0 million for the quarter ended June 30, 2001
decreased from $2.1 million for the same period of 2000. Significant variances
are explained as follows:
(i) A decrease of $0.9 million in depreciation and amortization expenses
from 2000 levels due to the sale or disposition of Partnership assets
during 2001 and 2000.
(ii) Loss on revaluation of equipment decreased $0.2 million during the
three months ended June 30, 2001 and resulted from the Partnership
reducing the carrying value of trailers to their estimated net
realizable value during the three months ended June 30, 2000. There
was no revaluation of equipment required during the same period of
2001.
(iii) A decrease of $0.1 million in interest expense was due to the
repayment of the Partnership's debt during 2000.
(iv) A $0.1 million increase in bad debt expense from the second quarter of
2000 was due to the General Partner's evaluation of the collectability
of receivables due from certain lessees and a $43,000 increase was due
to the recovery of a bad debt previously reserved for. A similar
recovery did not occur in the first quarter of 2001.
(C) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of owned equipment for the second quarter of
2001 was $0.1 million, resulting from the disposition of marine containers and
railcars, with an aggregate net book value of $48,000, for aggregate proceeds of
$0.2 million. The net gain on the disposition of owned equipment for the second
quarter of 2000 was $8,000, resulting from the disposition of marine containers,
railcars, and trailers, with an aggregate net book value of $0.1 million, for
aggregate proceeds of $0.1 million.
(D) Equity in Net Loss of Unconsolidated Special-Purpose Entities (USPE's)
Net 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 June 30,
2001 2000
-------------------------------------
Marine vessel $ -- $ (13)
-------------------------------------
Equity in net loss of USPE's $ -- $ (13)
=====================================
Marine vessel: As of June 30, 2001, the Partnership had no remaining interest in
entities that owned marine vessels. The Partnership's share of revenues and
expenses of marine vessels was $0 for the quarter ended June 30, 2001, compared
to $0.3 million and $0.3 million, respectively, for the same period of 2000. The
decrease in revenues and expenses of marine vessels in the second quarter of
2001 compared to the same period of 2000 was due to the sale of the
Partnership's interest in an entity that owned a marine vessel during the third
quarter of 2000.
(E) Net Income
As a result of the foregoing, the Partnership had a net income of $0.4 million
in the second quarter of 2001 compared to net income of $0.2 million in the
second quarter of 2000. The Partnership's ability to operate and liquidate
assets, secure leases, and re-lease those assets whose leases expire is subject
to many factors. Therefore, the Partnership's performance in the three months
ended June 30, 2001 is not necessarily indicative of future periods. In the
second quarter of 2001, the Partnership distributed $0.6 million to the limited
partners, or $0.06 per weighted-average depository unit.
COMPARISON OF THE PARTNERSHIP'S OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE
30, 2001 AND 2000
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating and asset-specific insurance expenses) on owned equipment
decreased during the six months ended June 30, 2001 when compared to the same
period of 2000.
The following table presents lease revenues less direct expenses by segment (in
thousands of dollars):
For the Six Months
Ended June 30,
2001 2000
-------------------------------------
Railcars $ 2,277 $ 2,475
Aircraft 158 2,219
Trailers 89 196
Marine containers 23 52
Railcars: Railcars lease revenues and direct expenses were $3.3 million and $1.0
million, respectively, for the six months ended June 30, 2001, compared to $3.4
million and $0.9 million, respectively, during the same period of 2000. The
decrease in railcar contribution in the six months ended June 30, 2001 was due
to a decrease in railcar utilization in 2001, compared to the same period in
2000.
Aircraft: Aircraft lease revenues and direct expenses were $0.2 million and
$27,000, respectively, for the six months ended June 30, 2001, compared to $2.4
million and $0.2 million, respectively, during the same period of 2000. The $2.1
decrease in aircraft contribution during the six months ended June 30, 2001
compared to the same period in 2000 is due to the sale of an aircraft during the
first quarter of 2001.
Trailers: Trailer lease revenues and direct expenses were $0.2 million and $0.1
million, respectively, for the six months ended June 30, 2001, compared to $0.3
million and $0.1 million, respectively, during the same period of 2000. 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
$23,000 and $0, respectively, for the six months ended June 30, 2001, compared
to $0.1 million and $1,000, respectively, during the same period of 2000. 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.
(B) Indirect Operating Expenses Related to Owned Equipment Operations
Total indirect expenses of $2.3 million for the six months ended June 30, 2001
decreased from $4.2 million for the same period of 2000. Significant variances
are explained as follows:
(i) A decrease of $1.7 million in depreciation and amortization expenses
from 2000 levels due to the disposition of Partnership assets during
2001 and 2000.
(ii) A decrease of $0.3 million in interest expense was due to the
repayment of the Partnership's debt during 2000.
(iii) Loss on revaluation of equipment decreased $0.2 million during the
six months ended June 30, 2001 and resulted from the Partnership
reducing the carrying value of trailers to their estimated net
realizable value during the six months ended June 30, 2000. There was
no revaluation of equipment required during the same period of 2001.
(iv) A decrease of $0.1 million in management fees to affiliate from 2000
levels was due to lower lease revenues during the six months ended
June 30, 2001, compared to the same period of 2000.
(v) A increase of $0.2 million in general and administrative expenses was
due to an increase of $0.1 million in legal fees related to aircraft
litigation. Allocations by the General Partner also increased $0.1
million, of which $30,000 was due to severance costs related to staff
reductions.
(vi) A increase of $0.2 million in bad debt expense from 2000. A $0.1
million increase was due to the General Partner's evaluation of the
collectability of receivables due from certain lessees and a $0.1
million increase was due to recovery of bad debt previously reserved
for during the six months of 2000. A similar recovery did not occur in
the six months ended June 30, 2001.
(C) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of equipment was $4.0 million for the six months
ended June 30, 2001, resulting from the disposition of aircraft, marine
containers, trailers, and railcars with an aggregate net book value of $1.6
million, for aggregate proceeds of $5.6 million. The net gain on the disposition
of equipment was $45,000 for the six months ended June 30, 2000, resulting from
the disposition of marine containers, trailers, and railcars with an aggregate
net book value of $0.2 million, for aggregate proceeds of $0.2 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 Six Months
Ended June 30,
2001 2000
-------------------------------------
Aircraft, aircraft engines, and rotables $ -- $ 22
Marine vessel (10) (107)
-------------------------------------
Equity in net (loss) of USPE's $ (10) $ (85)
=====================================
Aircraft, aircraft engines, and rotables: As of June 30, 2001, the Partnership
had no remaining interests in entities that owned aircraft, aircraft engines, or
rotables. The Partnership had no revenues or expenses in USPE's that owned
aircraft, aircraft engines, or rotables in the six months ended June 30, 2001.
The Partnership's share of aircraft revenues and expenses were $22,000 and zero,
respectively, for the six months ended June 30, 2000. The $22,000 of aircraft
revenues for the six months ended June 30, 2000 represented interest income
earned during the first six months of 2000 on accounts receivable.
Marine vessel: As of June 30, 2001, the Partnership's had no remaining interest
in entities that owned marine vessels. The Partnership's share of revenues and
expenses of marine vessels was $6,000 and $16,000, respectively, for the six
months ended June 30, 2001, compared to $0.5 million and $0.6 million,
respectively, for the same period of 2000. The decrease in revenues and expenses
of marine vessels for the six months ended June 30, 2001 compared to the same
period of 2000 was due to the sale of the Partnership's interest in an entity
that owned a marine vessel during the third quarter of 2000.
(E) Net Income
As a result of the foregoing, the Partnership had net income of $4.3 million for
the six months ended June 30, 2001, compared to a net income of $0.8 million in
the same period of 2000. The Partnership's ability to operate, or liquidate
assets, secure leases, and re-lease those assets whose leases expire is subject
to many factors. Therefore, the Partnership's performance in the six months
ended June 30, 2001 is not necessarily indicative of future periods. In the six
months ended June 30, 2001, the Partnership distributed $0.6 million to the
limited partners or $0.06 per weighted average depository unit.
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
For the six months ended June 30, 2001, the Partnership generated operating cash
of $1.5 million (net cash provided by operating activities, plus non-liquidating
distributions from USPE's) to meet its operating obligations and make
distributions to the partners (total of $0.6 million the six months ended June
30, 2001).
During the six months ended June 30, 2001, the Partnership sold owned equipment
and received aggregate proceeds of $5.6 million.
During the six months ended June 30, 2001, accounts receivable decreased $0.3
million, due to the timing of cash receipts and the increase in Allowance for
Doubtful Accounts.
During the six months ended June 30, 2001, accounts payable and accrued expenses
decreased $0.2 million due to the reduction of the size of the Partnership's
equipment portfolio.
During the six months ended June 30, 2001, lessee deposits and reserves for
repairs decreased $0.2 million. This reflects a decrease of $0.1 million in
lessee deposits due to the return of security deposits to the buyers who
purchased an aircraft during the first quarter of 2001. Additionally, a decrease
of $0.1 million in prepaid aircraft revenue was due to the sale of an aircraft.
The General Partner has not planned any expenditure, nor is it aware of any
contingencies that would cause the Partnership to require any additional
capital.
The Partnership is in its active liquidation phase. As a result, the size of the
Partnership's remaining equipment portfolio and, in turn, the amount of net cash
flows from operations will continue to become progressively smaller as assets
are sold. Significant asset sales may result in potential special distributions
to the partners.
The amounts reflected for assets and liabilities of the Partnership have not
been adjusted to reflect liquidation values. The equipment portfolio that is
actively being marketed for sale by the General Partner continues to be carried
at the lower of depreciated cost or fair value less cost of disposal. Although
the General Partner estimates that there will be distributions to the partners
after final disposal of assets and settlement of liabilities, the amounts cannot
be accurately determined prior to actual disposal of the equipment.
(III) OUTLOOK FOR THE FUTURE
The Partnership entered its liquidation phase on January 1, 2000. The General
Partner is seeking to selectively re-lease or sell assets as the existing leases
expire. Sale decisions will cause the operating performance of the Partnership
to decline over the remainder of its life. The General Partner filed a
certificate of dissolution on behalf of the Partnership with the Secretary of
State for the State of California in December 2000, and following completion of
the liquidation of the Partnership which is anticipated to occur in 2001, the
General Partner will file a certificate of cancellation.
Several factors may affect the Partnership's operating performance in the
remainder of 2001, including changes in the markets for the Partnership's
equipment and changes in the regulatory environment in which that equipment
operates.
Liquidation of the Partnership's equipment will cause a reduction in the size of
the equipment portfolio and may result in a reduction of contribution to the
Partnership.
Other factors affecting the Partnership's contribution in the year 2001 include:
1. The cost of new marine containers have been at historical lows for the past
several years which has caused downward pressure on the per diem lease
rates for this type of equipment.
2. Railcar loadings in North America for the six months ending 2001 were below
those of 2000. This decrease has led to lower utilization and lower
contribution to the Partnership as existing leases expire and renewal
leases are negotiated.
The ability of the Partnership to realize acceptable lease rates on its
equipment in the different equipment markets is contingent on many factors, such
as specific market conditions and economic activity, technological obsolescence,
and government or other regulations. The unpredictability of these factors, or
of their occurrence, makes it difficult for the General Partner to clearly
define trends or influences that may impact the performance of the Partnership's
equipment. The General Partner continually monitors both the equipment markets
and the performance of the Partnership's equipment in these markets. The General
Partner may decide to reduce the Partnership's exposure to those equipment
markets in which it determines that it cannot operate equipment and achieve
acceptable rates of return.
The Partnership intends to use cash flow from operations and proceeds from
disposition of equipment and cash currently held to satisfy its operating
requirements, maintain working capital reserves, and to pay cash distributions
to the unitholders.
(IV) FORWARD-LOOKING INFORMATION
Except for the historical information contained herein this Form 10-Q contains
forward-looking statements that involve risks and uncertainties, such as
statements of the Partnership's plans, objectives, expectations, and intentions.
The cautionary statements made in this Form 10-Q should be read as being
applicable to all related forward-looking statements wherever they appear in
this Form 10-Q. The Partnership's actual results could differ materially from
those discussed here.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposure is currency devaluation risk.
During the six months ended June 30, 2001, 76% of the Partnership's total lease
revenues from wholly-and partially-owned equipment came from non-United States
domiciled lessees. Most of the Partnership's leases require payment in United
States (U.S.) currency. If these lessees currency devalues against the U.S.
dollar, the lessees could potentially encounter difficulty in making the U.S.
dollar denominated lease payments.
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
(this space intentionally left blank)
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLM EQUIPMENT GROWTH FUND III
By: PLM Financial Services, Inc.
General Partner
Date: August 13, 2001 By: /s/ Stephen M. Bess
----------------------------------------
Stephen M. Bess
President and
Current Chief Accounting Officer