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, 2001
[x] 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)
CONDENSED BALANCE SHEETS
(in thousands of dollars, except unit amounts)
(unaudited)
September 30, December 31,
2001 2000
------------------------------------
ASSETS
Equipment held for operating lease, at cost $ 38,750 $ 40,028
Less accumulated depreciation (34,420) (34,361)
-----------------------------------
4,330 5,667
Equipment held for sale -- 1,703
-----------------------------------
Net equipment 4,330 7,370
Cash and cash equivalents 9,077 1,832
Restricted cash -- 125
Accounts receivable, net of allowance for doubtful
accounts of $458 in 2001 and $455 in 2000 649 591
Investments in unconsolidated special-purpose entity -- 76
Prepaid expenses and other assets 25 43
-----------------------------------
Total assets $ 14,081 $ 10,037
===================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 430 $ 462
Due to affiliates 70 72
Lessee deposits and reserves for repairs -- 187
-----------------------------------
Total liabilities 500 721
-----------------------------------
Partners' capital:
Limited partners (9,871,073 depositary units as
of September 30, 2001 and December 31, 2000) 13,581 9,316
General Partner -- --
-----------------------------------
Total partners' capital 13,581 9,316
-----------------------------------
Total liabilities and partners' capital $ 14,081 $ 10,037
===================================
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
CONDENSED STATEMENTS OF INCOME
(in thousands of dollars, except weighted-average unit amounts)
(unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2001 2000 2001 2000
---------------------------- ---------------------------
Lease revenue $ 1,688 $ 2,962 $ 5,363 $ 9,130
Interest and other income 78 67 248 109
Net gain on disposition of equipment 31 9,635 4,015 9,680
---------------------------- ---------------------------
Total revenues 1,797 12,664 9,626 18,919
---------------------------- ---------------------------
EXPENSES
Depreciation and amortization 428 1,175 1,464 3,932
Repairs and maintenance 483 552 1,574 1,713
Equipment operating expenses 9 7 26 23
Insurance expense 20 32 115 101
Management fees to affiliate 119 160 354 510
Interest expense -- 39 -- 306
General and administrative expenses to
affiliates 60 97 310 301
Other general and administrative expenses 182 224 880 720
Loss on revaluation of equipment -- 11 -- 202
Provision for (recovery of) bad debts (92) 36 4 (69)
---------------------------- ---------------------------
Total expenses 1,209 2,333 4,727 7,739
---------------------------- ---------------------------
Equity in net income (loss) of unconsolidated
special-purpose entities -- 1,102 (10) 1,017
---------------------------- ---------------------------
Net income $ 588 $ 11,433 $ 4,889 12,197
============================ ===========================
PARTNERS' SHARE OF NET INCOME
Limited partners $ 588 $ 11,433 $ 4,858 $ 12,197
General Partner -- -- 31 --
---------------------------- ---------------------------
Total $ 588 $ 11,433 $ 4,889 $ 12,197
============================ ===========================
Limited partners net income per weighted-
average depositary unit $ 0.06 $ 1.16 $ 0.49 $ 1.24
============================ ===========================
Cash distribution $ -- $ -- $ 624 $ --
============================ ===========================
Cash distribution per weighted-average
depositary unit $ -- $ -- $ 0.06 $ --
============================ ===========================
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
CONDENSED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Period from December 31, 1999 to September 30, 2001
(in thousands of dollars)
(unaudited)
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 4,858 31 4,889
Cash distribution (593) (31) (624)
------------------------------------------------
Partners' capital as of September 30, 2001 $ 13,581 $ -- $ 13,581
================================================
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
For the Nine Months
Ended September 30,
2001 2000
----------------------------
OPERATING ACTIVITIES
Net income $ 4,889 $ 12,197
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,464 3,932
Loss on revaluation of equipment -- 202
Net gain on disposition of equipment (4,015) (9,680)
Equity in net loss (income) from unconsolidated special-purpose entities 10 (1,017)
Changes in operating assets and liabilities:
Restricted cash 125 --
Accounts receivable, net (23) 17
Prepaid expenses and other assets 18 51
Accounts payable and accrued expenses (32) (307)
Due to affiliates (2) 2
Lessee deposits and reserves for repairs (187) (1,261)
----------------------------
Net cash provided by operating activities 2,247 4,136
----------------------------
INVESTING ACTIVITIES
Payments for capitalized improvements (70) (78)
Distributions from unconsolidated special-purpose entities 66 160
Distributions from liquidation of unconsolidated special-purpose entity -- 3,164
Proceeds from disposition of equipment 5,626 12,466
----------------------------
Net cash provided by investing activities 5,622 15,712
----------------------------
FINANCING ACTIVITIES
Principal payments on note payable -- (7,458)
Proceeds of short-term loan from affiliate -- 4,550
Payments of short-term loan from affiliate -- (5,150)
Cash distributions paid to limited partners (593) --
Cash distributions paid to General Partner (31) --
----------------------------
Net cash used in financing activities (624) (8,058)
----------------------------
Net increase in cash and cash equivalents 7,245 11,790
Cash and cash equivalents at beginning of period 1,832 486
----------------------------
Cash and cash equivalents at end of period $ 9,077 $ 12,276
============================
SUPPLEMENTAL INFORMATION
Interest paid $ -- $ 316
============================
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. OPINION OF MANAGEMENT
In the opinion of the management of PLM Financial Services, Inc. (FSI or the
General Partner), the accompanying unaudited condensed financial statements
contain all adjustments necessary, consisting primarily of normal recurring
accruals, to present fairly the condensed financial position of PLM Equipment
Growth Fund III (the Partnership) as of September 30, 2001 and December 31,
2000, the condensed statements of income for the three months and nine months
ended September 30, 2001 and 2000, the condensed statements of changes in
partners' capital for the period from December 31, 1999 to September 30, 2001,
and the condensed statements of cash flows for the nine months ended September
30, 2001 and 2000. Certain information and note disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted from the
accompanying condensed 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 that is anticipated to occur in 2002, will file a
certificate of cancellation. The General Partner is currently marketing all of
the Partnership's assets for sale.
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 nine
months ended September 30, 2001, cash distributions were $0.6 million. There
were no cash distributions for the three months ended September 30, 2001 and
there were no cash distributions for the three and nine months ended September
30, 2000. None of the cash distributions in the nine months ended September 30,
2001 were considered a return of capital.
4. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES
The balance due to affiliates as of September 30, 2001 and December 31, 2000
included $0.1 million due to FSI and its affiliate for management fees.
The Partnership's proportional share of unconsolidated special purpose entity
(USPE) - affiliated management fees payable to FSI and its affiliate as of
September 30, 2001 and December 31, 2000 was $-0- and $10,000, respectively.
The Partnership's proportional share of the affiliated expenses incurred by the
USPE during 2001 and 2000 is listed in the following table (in thousands of
dollars):
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2001 2000 2001 2000
-------------------------------------------------------------
Management fees $ -- $ 9 $ -- $ 36
Data processing and administrative
expenses -- 3 1 9
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
5. EQUIPMENT
Owned equipment held for operating leases is stated at cost. Equipment held for
sale is stated at the lower of the equipment's depreciated cost or fair value,
less cost to sell, and is subject to a pending contract for sale. The components
of owned equipment were as follows (in thousands of dollars):
September 30, December 31,
2001 2000
--------------------------------------
Rail equipment $ 32,757 $ 33,370
Trailers 3,202 3,428
Marine containers 2,791 3,230
-------------------------------------
38,750 40,028
Less accumulated depreciation (34,420) (34,361)
-------------------------------------
4,330 5,667
Equipment held for sale -- 1,703
-------------------------------------
Net equipment $ 4,330 $ 7,370
=====================================
As of September 30, 2001, all equipment in the Partnership portfolio was on
lease except for 113 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 $0.4 million and
$0.6 million as of September 30, 2001 and December 31, 2000, respectively.
A Boeing 737-200 Stage II commercial aircraft and a Dash 8-300 Stage II commuter
aircraft, subject to a pending contract for sale, were held for sale as of
December 31, 2000 at the lower of the equipment's depreciated cost or fair
value, less cost to sell.
Capital improvements to the Partnership's equipment of $0.1 million were made
during the nine months ended September 30, 2001 and 2000.
During the nine months ended September 30, 2001, the Partnership disposed of
aircraft, marine containers, trailers, and railcars, with an aggregate net book
value of $1.6 million, for proceeds of $5.7 million. The aircraft were reported
as equipment held for sale as of December 31, 2000. During the nine months ended
September 30, 2000, the Partnership disposed of marine containers, trailers,
railcars, and aircraft with an aggregate net book value of $2.8 million, for
proceeds of $12.5 million.
During the nine months ended September 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 nine months ended September 30, 2001.
6. INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITY
The Partnership's net investment in a USPE consisted of a 56% interest in an
entity that owned a marine vessel (and related assets and liabilities) totaling
$-0- and $76,000 as of September 30, 2001 and December 31, 2000, respectively.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
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
For the three months ended Aircraft Railcar Container Trailer
September 30, 2001 Leasing Leasing Leasing Leasing Other(1) Total
------------------ ------- ------- ------- ------- ----- -----
REVENUES
Lease revenue $ -- $ 1,586 $ (3) $ 105 $ -- $ 1,688
Interest income and other -- -- -- -- 78 78
Gain (loss) on disposition of (5) 23 11 2 -- 31
equipment
-------------------------------------------------------------
Total revenues (5) 1,609 8 107 78 1,797
Costs and Expenses
Operations support 77 362 -- 57 16 512
Depreciation and amortization -- 386 7 35 -- 428
Management fees (2) 116 -- 5 -- 119
General and administrative expenses -- 48 -- 26 168 242
Recovery of bad debts -- (92) -- -- -- (92)
-------------------------------------------------------------
Total costs and expenses 75 820 7 123 184 1,209
-------------------------------------------------------------
Net income (loss) $ (80) $ 789 $ 1 $ (16) $ (106) $ 588
=============================================================
Total assets as of September 30, 2001 $ -- $ 4,083 $ 58 $ 838 $ 9,102 $ 14,081
=============================================================
Marine Marine
For the three months ended Aircraft Railcar Vessel Container Trailer
September 30, 2000 Leasing Leasing Leasing Leasing Leasing Other(1) Total
------------------ ------- ------- ------- ------- ------- ----- -----
REVENUES
Lease revenue $ 1,227 $ 1,584 $ -- $ 15 $ 136 $ -- $ 2,962
Interest income and other 1 9 -- -- -- 57 67
Gain on disposition of equipment 9,460 68 -- 23 84 -- 9,635
------------------------------------------------------------------------
Total revenues 10,688 1,661 -- 38 220 57 12,664
COSTS AND EXPENSES
Operations support 23 498 -- 1 60 9 591
Depreciation and amortization 696 403 -- 17 60 (1) 1,175
Interest expense -- -- -- -- -- 39 39
Management fees 47 105 -- -- 8 -- 160
General and administrative expenses 58 51 -- 1 28 183 321
Loss on revaluation of equipment -- -- -- -- 11 -- 11
Provision for bad debts -- 36 -- -- -- -- 36
------------------------------------------------------------------------
Total costs and expenses 824 1,093 -- 19 167 230 2,333
------------------------------------------------------------------------
Equity in net income of USPE's -- -- 1,102 -- -- -- 1,102
------------------------------------------------------------------------
Net income (loss) $ 9,864 $ 568 $ 1,102 $ 19 $ 53 $ (173) $ 11,433
========================================================================
Total assets as of September 30, 2000 $ 2,078 $ 5,464 $ 191 $ 191 $ 1,054 $ 12,285 $ 21,263
========================================================================
(1) Includes certain assets not identifiable to a particular segment, such as
cash and prepaid expenses. Also 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 CONDENSED FINANCIAL STATEMENTS
(unaudited)
7. OPERATING SEGMENTS (continued)
Marine Marine
For the nine months ended Aircraft Railcar Vessel Container Trailer
September 30, 2001 Leasing Leasing Leasing Leasing Leasing Other(1) Total
------------------ ------- ------- ------- ------- ------- ----- -----
REVENUES
Lease revenue $ 185 $ 4,864 $ -- $ 20 $ 294 $ -- $ 5,363
Interest income and other 39 -- -- -- -- 209 248
Gain on disposition of equipment 3,694 247 -- 51 23 -- 4,015
--------------------------------------------------------------------------
Total revenues 3,918 5,111 -- 71 317 209 9,626
COSTS AND EXPENSES
Operations support 104 1,363 -- -- 155 93 1,715
Depreciation and amortization 151 1,174 -- 23 116 -- 1,464
Management fees 2 336 -- 1 15 -- 354
General and administrative 215 178 15 1 64 717 1,190
expenses
Provision for bad debts -- 4 -- -- -- -- 4
--------------------------------------------------------------------------
Total costs and expenses 472 3,055 15 25 350 810 4,727
--------------------------------------------------------------------------
Equity in net loss of USPE's -- -- (10) -- -- -- (10)
--------------------------------------------------------------------------
Net income (loss) $ 3,446 $ 2,056 $ (25) $ 46 $ (33) $ (601) $ 4,889
==========================================================================
Total assets as of September 30, $ -- $ 4,083 $ -- $ 58 $ 838 $ 9,102 $ 14,081
2001
==========================================================================
Marine Marine
For the nine months ended Aircraft Railcar Vessel Container Trailer
September 30, 2000 Leasing Leasing Leasing Leasing Leasing Other(1) Total
------------------ ------- ------- ------- ------- ------- ----- -----
REVENUES
Lease revenue $ 3,654 $ 4,972 $ -- $ 68 $ 436 $ -- $ 9,130
Interest income and other 3 12 -- -- -- 94 109
Gain on disposition of equipment 9,460 106 -- 36 78 -- 9,680
--------------------------------------------------------------------------
Total revenues 13,117 5,090 -- 104 514 94 18,919
Costs and Expenses
Operations support 231 1,411 -- 2 164 29 1,837
Depreciation and amortization 2,429 1,230 -- 59 184 30 3,932
Interest expense -- -- -- -- -- 306 306
Management fees 138 345 -- 3 24 -- 510
General and administrative 151 160 -- 1 75 634 1,021
expenses
Loss on revaluation of equipment -- -- -- -- 202 -- 202
Recovery of bad debts -- (58) -- -- (1) (10) (69)
--------------------------------------------------------------------------
Total costs and expenses 2,949 3,088 -- 65 648 989 7,739
--------------------------------------------------------------------------
Equity in net income of USPE's 22 -- 995 -- -- -- 1,017
--------------------------------------------------------------------------
Net income (loss) $ 10,190 $ 2,002 $ 995 $ 39 $ (134) $ (895) $ 12,197
==========================================================================
Total assets as of September 30, $ 2,078 $ 5,464 $ 191 $ 191 $ 1,054 $ 12,285 $ 21,263
==========================================================================
(1) Includes certain assets not identifiable to a particular segment, such as
cash and prepaid expenses. Also 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.
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 nine months
ended September 30, 2001 and 2000 was 9,871,073.
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
9. CONTINGENCIES
The Partnership, together with affiliates, has initiated litigation in various
official forums in India against two defaulting Indian airline lessees to
repossess Partnership property and to recover damages for failure to pay rent
and failure to maintain such property in accordance with the relevant lease
contract. The Partnership has repossessed all of its property previously leased
to these airlines and causing one of the airline lessees to cease operations. In
response to the Partnership's collection efforts, the airline lessees filed
counter-claims against the Partnership in excess of the Partnership's claims
against the airline. The General Partner believes that the airline's
counterclaims are completely without merit, and the General Partner will
vigorously defend against such counterclaims. The General Partner believes the
likelihood of an unfavorable outcome from the counterclaims is remote.
During 2001, an arbitration between one India lessee and the Partnership took
place and the Partnership was awarded a settlement. The General Partner and the
lessee are in the process of negotiating the settlement in a manner that
benefits all parties involved. The General Partner decided not to accrue the
amount of the settlement because collection of the settlement is remote. The
General Partner will continue to try to collect the full amount of the
settlement.
During 2001, the General Partner has decided to minimize its collection efforts
from the other India lessee in order to save the Partnership from incurring
additional expenses associated with trying to collect from a lessee that has a
limited ability to pay.
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 or results of operations 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. 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 2001 and 2000. Sales and liquidations
occur based on the determination by the General Partner that it is the
appropriate time to maximize the return on an asset through the 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 SEPTEMBER 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 September 30, 2001 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 unaudited condensed 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 September 30,
2001 2000
-------------------------------------
Railcars $ 1,224 $ 1,086
Trailers 48 76
Marine containers (3) 14
Aircraft (77) 1,204
Railcars: Railcar lease revenues and direct expenses were $1.6 million and $0.4
million, respectively, for the quarter ended September 30, 2001, compared to
$1.6 million and $0.5 million, respectively, during the same period of 2000.
Direct expenses decreased $0.1 million during the three months ended September
30, 2001 due to fewer required repairs compared to the same period of 2000.
Trailers: Trailer lease revenues and direct expenses were $0.1 million and $0.1
million, respectively, for the quarters ended September 30, 2001 and 2000.
Marine containers: Marine container lease revenues and direct expenses were
$(3,000) and $-0- respectively, for the quarter ended September 30, 2001,
compared to $15,000 and $1,000, respectively, during the same period of 2000.
The decrease in marine container contribution in the third quarter of 2001 was
due to the disposition of marine containers in 2000 and 2001. The negative lease
revenues during the three months ended September 30, 2001, was caused by actual
lease revenues during the second quarter of 2001 being less than had been
previously reported.
Aircraft: Aircraft lease revenues and direct expenses were $-0- and $0.1
million, respectively, for the quarter ended September 30, 2001, compared to
$1.2 million and $23,000, respectively, during the same period of 2000. Lease
revenues decreased $1.2 million during the three months ended September 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 $0.7 million for the quarter ended September 30, 2001
decreased from $1.7 million for the same period of 2000. Significant variances
are explained as follows:
(i) A $0.7 million decrease in depreciation and amortization expenses from
2000 levels was due to the disposition of Partnership assets during
2001 and 2000.
(ii) A $0.1 million decrease in administrative expenses during the third
quarter 2001 was primarily due to a decrease in professional services
required by the Partnership.
(iii)A $0.1 million decrease in bad debt expense from the third quarter of
2000 was due to the recovery of a $0.1 million receivable previously
reserved for as a bad debt. A similar bad debt recovery did not occur
in the third quarter of 2000.
(iv) A decrease of $39,000 in interest expense was due to the repayment of
the Partnership's debt during 2000.
(C) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of owned equipment for the third quarter of 2001
was $31,000, resulting from the disposition of marine containers, trailers, and
railcars, with an aggregate net book value of $19,000, for proceeds of $0.1
million. The net gain on the disposition of owned equipment for the third
quarter of 2000 was $9.6 million, resulting from the disposition of marine
containers, railcars, trailers, and aircraft with an aggregate net book value of
$2.6 million, for proceeds of $12.2 million.
(D) Equity in Net Income of Unconsolidated Special-Purpose Entities (USPE's)
Net income 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,
2001 2000
-------------------------------------
Marine vessel $ -- $ 1,102
-------------------------------------
Equity in net income of USPE's $ -- $ 1,102
=====================================
Marine vessel: As of September 30, 2001, the Partnership had no remaining
interest in an entity that owned a marine vessel. Marine vessel revenues and
expenses were $-0- for the quarter ended September 30, 2001, compared to lease
revenues of $0.2 million and the gain of $1.1 million from the sale of the
marine vessel entity in which the Partnership owned an interest offset, in part,
by depreciation expense, direct expenses, and administrative expenses of $0.2
million, respectively, for the same period of 2000. The decrease in revenues and
expenses of marine vessels in the third 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 $0.6 million
in the third quarter of 2001 compared to net income of $11.4 million in the
third 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 September 30, 2001 is not necessarily indicative of future periods.
(This space intentionally left blank)
COMPARISON OF THE PARTNERSHIP'S OPERATING RESULTS FOR THE NINE MONTHS ENDED
SEPTEMBER 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 nine months ended September 30, 2001 compared to the same
period of 2000. The following table presents lease revenues less direct expenses
by equipment type (in thousands of dollars):
For the Nine Months
Ended September 30,
2001 2000
-------------------------------------
Railcars $ 3,501 $ 3,561
Trailers 139 272
Aircraft 81 3,423
Marine containers 20 66
Railcars: Railcars lease revenues and direct expenses were $4.9 million and $1.4
million, respectively, for the nine months ended September 30, 2001, compared to
$5.0 million and $1.4 million, respectively, during the same period of 2000. The
decrease in railcar contribution in the nine months ended September 30, 2001 was
due to a decrease in railcar utilization in 2001, compared to the same period in
2000.
Trailers: Trailer lease revenues and direct expenses were $0.3 million and $0.2
million, respectively, for the nine months ended September 30, 2001, compared to
$0.4 million and $0.2 million, respectively, during the same period of 2000. The
number of trailers owned by the Partnership has been declining due to
dispositions. The result of this declining fleet is a decrease in trailer
contribution.
Aircraft: Aircraft lease revenues and direct expenses were $0.2 million and $0.1
million, respectively, for the nine months ended September 30, 2001, compared to
$3.7 million and $0.2 million, respectively, during the same period of 2000. The
$3.3 million decrease in aircraft contribution during the nine months ended
September 30, 2001 compared to the same period in 2000 was due to the sale of
the Partnership's' aircraft during the first quarter of 2001.
Marine containers: Marine container lease revenues and direct expenses were
$20,000 and $-0-, respectively, for the nine months ended September 30, 2001,
compared to $0.1 million and $2,000, respectively, during the same period of
2000. The number of marine containers owned by the Partnership has been
declining due to 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 $3.0 million for the nine months ended September 30,
2001 decreased from $5.9 million for the same period of 2000. Significant
variances are explained as follows:
(i) A decrease of $2.5 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
nine months ended September 30, 2001 compared to the same period of
2000. During the nine months ended September 30, 2000, the Partnership
reduced the carrying value of trailers to their estimated net
realizable value. There was no revaluation of equipment required
during the same period of 2001.
(iv) A decrease of $0.2 million in management fees to affiliate from 2000
levels was due to lower lease revenues during the nine months ended
September 30, 2001, compared to the same period of 2000.
(v) An 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) An increase of $0.1 million in bad debt expense during the nine months
ended September 30, 2001 compared to the same period of 2000. During
the nine months ended September 30, 2001, the General Partner's
evaluation of the collectability of receivables due from certain
lessees of $0.1 million was offset by the recovery of $0.1 million
receivable previously reserved for as a bad debt. During the same
period of 2000, the General Partner's evaluation of the collectability
of receivables due from certain lessees of $36,000 was offset by the
recovery of $0.1 million receivable previously reserved for as a bad
debt.
(C) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of equipment was $4.0 million for the nine
months ended September 30, 2001, resulting from the disposition of aircraft,
marine containers, trailers, and railcars with an aggregate net book value of
$1.6 million, for proceeds of $5.7 million. The net gain on the disposition of
equipment was $9.7 million for the nine months ended September 30, 2000,
resulting from the disposition of marine containers, trailers, railcars, and
aircraft with an aggregate net book value of $2.8 million, for proceeds of $12.5
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 Nine Months
Ended September 30,
2001 2000
-------------------------------------
Aircraft, aircraft engines, and rotables $ -- $ 20
Marine vessel (10) 997
-------------------------------------
Equity in net income (loss) of USPE's $ (10) $ 1,017
=====================================
Aircraft, aircraft engines, and rotables: As of September 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 nine months ended September
30, 2001. The Partnership's share of aircraft revenues and expenses were $20,000
and $-0-, respectively, for the nine months ended September 30, 2000. The
$20,000 of aircraft revenues for the nine months ended September 30, 2000
represented interest income earned on accounts receivable.
Marine vessel: As of September 30, 2001, the Partnership's had no remaining
interests in entities that owned marine vessels. During the nine months ended
September 30, 2001, lease revenues of $6,000 was offset by depreciation expense,
direct expenses, and administrative expenses of $16,000, compared to lease
revenues of $0.7 million and the gain of $1.1 million from the sale of the
Partnership's interest in an entity that owned a marine vessel being offset by
depreciation expense, direct expenses, and administrative expenses of $0.8
million, for the same period of 2000. The decrease in lease revenues and
expenses of marine vessels for the nine months ended September 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 2000.
(E) Net Income
As a result of the foregoing, the Partnership had net income of $4.9 million for
the nine months ended September 30, 2001, compared to net income of $12.2
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 nine
months ended September 30, 2001 is not necessarily indicative of future periods.
In the nine months ended September 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 nine months ended September 30, 2001, the Partnership generated
operating cash of $2.3 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 nine months ended
September 30, 2001).
During the nine months ended September 30, 2001, the Partnership sold owned
equipment and received aggregate proceeds of $5.6 million.
Restricted cash decreased $0.1 million during the nine months ended September
30, 2001 due to the return of the security deposit to the buyer of an aircraft.
During the nine months ended September 30, 2001, accounts receivable increased
$0.1 million due to the timing of cash receipts.
During the nine months ended September 30, 2001, accounts payable and accrued
expenses decreased $32,000 due to the reduction in the size of the Partnership's
equipment portfolio.
During the nine months ended September 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 actively marketing all of the Partnership's assets for sale. 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 2002, the
General Partner will file a certificate of cancellation.
Several factors may affect the Partnership's operating performance in the
remainder of 2001 and beyond, including changes in the markets for the
Partnership's equipment and changes in the regulatory environment in which that
equipment operates.
Liquidation of the Partnership's equipment 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 and
beyond 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 nine 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 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 nine months ended September 30, 2001, 64% of the Partnership's total
lease revenues from wholly-and partially-owned equipment came from non-United
States domiciled lessees. Most of the Partnership's leases require payment in
United States (U.S.) currency. If these lessees currency devalues against the
U.S. dollar, the lessees could potentially encounter difficulty in making the
U.S. dollar denominated lease payments.
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PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
None.
(b) Reports on Form 8-K
Report dated September 5, 2001 announcing the engagement of
Deloitte & Touche LLP as the Partnership's auditors and the
dismissal of KPMG, LLP.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLM EQUIPMENT GROWTH FUND III
By: PLM Financial Services, Inc.
General Partner
Date: November 13, 2001 By: /s/ Stephen M. Bess
-----------------------------------
Stephen M. Bess
President and
Current Chief Accounting Officer