-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PV34dwRNKL28YGiOaN2oE1ANL+DFGmzwAuQO26B9VWLPWzYC8vla1KOlF6L+fAn6 2P/mWI4p1uKmRTI2OrhqZg== 0000824210-96-000005.txt : 19961118 0000824210-96-000005.hdr.sgml : 19961118 ACCESSION NUMBER: 0000824210-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLM EQUIPMENT GROWTH FUND III CENTRAL INDEX KEY: 0000824210 STANDARD INDUSTRIAL CLASSIFICATION: WATER TRANSPORTATION [4400] IRS NUMBER: 680146197 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10813 FILM NUMBER: 96664339 BUSINESS ADDRESS: STREET 1: STEUART ST TOWER STE 900 STREET 2: C/O ONE MARKET PLAZA CITY: SAN FRANCISCO STATE: CA ZIP: 94105 BUSINESS PHONE: 4159741399 MAIL ADDRESS: STREET 1: ONE MARKET STEUART STREET TWR STREET 2: STE 900 CITY: SAN FRANCISCO STATE: CA ZIP: 94105 10-Q 1 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, 1996. [ ] 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) ASSETS
September 30, December 31, 1996 1995 --------------------------------- Equipment held for operating leases $ 137,418 $ 130,132 Less accumulated depreciation (75,252 ) (84,207 ) --------------------------------- 62,166 45,925 Equipment held for sale -- 475 --------------------------------- Net equipment 62,166 46,400 Cash and cash equivalents 2,232 3,243 Restricted cash and marketable securities 5,890 5,660 Investments in unconsolidated special purpose entities 11,511 20,820 Accounts and note receivable, net of allowance for doubtful accounts of $1,350 in 1996 other and $569 in 1995 1,411 2,242 Net investment in sales-type lease -- 4,518 Prepaid expenses -- 74 Deferred charges, net of accumulated amortization of $2,248 in 1996 and $2,159 in 1995 545 360 --------------------------------- Total assets $ 83,755 $ 83,317 ================================= LIABILITIES Liabilities: Accounts payable and accrued expenses $ 1,625 $ 1,355 Due to affiliates 1,501 1,499 Notes payable 40,573 41,000 Prepaid deposits and reserves for repairs 7,858 9,126 --------------------------------- Total liabilities 51,557 52,980 Partners' capital: Limited Partners (9,871,073 Depositary Units at September 30, 1996 and 9,899,573 Depositary Units at December 31, 1995) 32,198 30,337 General Partner -- -- --------------------------------- Total partners' capital 32,198 30,337 --------------------------------- Total liabilities and partners' capital $ 83,755 $ 83,317 =================================
See accompanying notes to these financial statements. PLM EQUIPMENT GROWTH FUND III (A Limited Partnership) STATEMENTS OF INCOME (in thousands of dollars except per unit amounts)
For the three months For the nine months ended September 30, ended September 30, 1996 1995 1996 1995 ------------------------------------------------------------ Revenues: Lease revenue $ 4,457 $ 5,749 $ 13,427 $ 17,147 Interest and other income 214 432 861 1,266 Net gain on disposition of equipment 5,494 874 6,347 2,888 ------------------------------------------------------------ Total revenues 10,165 7,055 20,635 21,301 Expenses: Depreciation and amortization 3,010 3,249 7,100 9,172 Management fees to affiliate 241 274 749 838 Repairs and maintenance 712 775 3,452 2,801 Interest expense 622 887 2,259 2,656 Insurance expense to affiliates -- 27 -- 244 Other insurance expense 73 53 233 271 Bad debt expense 155 105 784 290 Marine equipment operating expenses 198 106 284 786 General and administrative expenses to affiliates 122 177 492 568 Other general and administrative expenses 347 259 839 789 ------------------------------------------------------------ Total expenses 5,480 5,912 16,192 18,415 Equity in net income of unconsolidated special purpose entities 6,968 -- 6,905 -- ------------------------------------------------------------ Net income $ 11,653 $ 1,143 $ 11,348 $ 2,886 ============================================================ Partners' share of net income: Limited Partners $ 11,523 $ 934 $ 10,879 $ 2,258 General Partner 130 209 469 628 ------------------------------------------------------------ Total $ 11,653 $ 1,143 $ 11,348 $ 2,886 ============================================================ Net income per Depositary Unit (9,871,073 Units at September 30, 1996 and 9,918,826 Units at September 30, 1995) $ 1.17 $ 0.09 $ 1.10 $ 0.23 ============================================================ Cash distributions $ 2,598 $ 4,176 $ 9,367 $ 12,560 ============================================================ Cash distributions per Depositary Unit $ 0.25 $ 0.40 $ 0.90 $ 1.20 ============================================================
See accompanying notes to these financial statements. PLM EQUIPMENT GROWTH FUND III (A Limited Partnership) STATEMENT OF CHANGES IN PARTNERS' CAPITAL For the period from December 31, 1994 to September 30, 1996 (in thousands of dollars)
Limited General Partners Partner Total ------------------------------------------------ Partners' capital at December 31, 1994 $ 44,751 $ -- $ 44,751 Net income 1,869 837 2,706 Repurchase of Depositary Units (383 ) -- (383 ) Cash Distributions (15,900 ) (837 ) (16,737 ) ----------------------------------------------- Partners' capital at December 31, 1995 30,337 -- 30,337 Net income 10,879 469 11,348 Repurchase of Depositary Units (120 ) -- (120 ) Cash distributions (8,898 ) (469 ) (9,367 ) ----------------------------------------------- Partners' capital at September 30, 1996 $ 32,198 $ -- $ 32,198 ===============================================
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, 1996 1995 ---------------------------- Cash flows from operating activities: Net income $ 11,348 $ 2,886 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,100 9,172 Net gain on disposition of equipment (6,347 ) (2,888 ) Income from unconsolidated special purpose entities in excess of cash distributions (4,402 ) -- Sales-type lease income (1,885 ) -- Changes in operating assets and liabilities: Accounts and note receivable, net 831 1,034 Prepaid expenses 74 196 Restricted cash and marketable securities (230 ) 3,569 Accounts payable and accrued expenses 270 (17 ) Due to affiliates 2 986 Prepaid deposits and reserves for repairs (481 ) (180 ) ---------------------------- Cash provided by operating activities 6,280 14,758 ---------------------------- Investing activities: Payments for purchase of equipment (28,540 ) (9,756 ) Payments for capitalizable repairs (679 ) (1,058 ) Payments of acquisition-related fees to affiliate (1,569 ) (538 ) Payments received on sales-type lease 6,403 -- Proceeds from disposition of equipment 13,297 3,085 Liquidation proceeds from unconsolidated special purpose entities 13,711 -- ---------------------------- ---------------------------- Cash provided by (used in) investing activities 2,623 (8,267 ) ---------------------------- Financing activities: Cash distributions paid to General Partner (469 ) (628 ) Cash distributions paid to Limited Partners (8,898 ) (11,932 ) Repurchase of depositary units (120 ) (274 ) Proceeds from notes payable 19,148 -- Principal payments on notes payable (19,575 ) -- ---------------------------- Cash used in financing activities (9,914 ) (12,834 ) ---------------------------- Cash and cash equivalents: Net decrease in cash and cash equivalents (1,011 ) (6,343 ) Cash and cash equivalents at beginning of period 3,243 14,885 ---------------------------- Cash and cash equivalents at end of period $ 2,232 $ 8,542 ============================ Supplemental information: Interest paid $ 2,157 $ 1,914 ============================
See accompanying notes to financial statements. PLM EQUIPMENT GROWTH FUND III (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS September 30, 1996 1. Opinion of Management In the opinion of the management of PLM Financial Services, Inc. (FSI), the General Partner, the accompanying unaudited financial statements contain all adjustments necessary, consisting primarily of normal recurring accruals, to present fairly the financial position of PLM Equipment Growth Fund III (the Partnership) as of September 30, 1996, the statements of income for the three months and nine months ended September 30, 1996 and 1995, and the statement of changes in Partners' capital for the period from December 31, 1994 to September 30, 1996 and the statements of cash flows for the nine months ended September 30, 1996 and 1995. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from the accompanying financial statements. For further information, reference should be made to the financial statements and notes thereto included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1995, on file at the Securities and Exchange Commission. 2. Reclassifications Certain amounts in the 1995 financial statements have been reclassified to conform with the 1996 presentation. 3. Investments in Unconsolidated Special Purpose Entities During the second half of 1995, the Partnership began to increase the level of its participation in the ownership of large-ticket transportation assets to be owned and operated jointly with affiliated programs. This trend has continued in the third quarter of 1996. Prior to 1996, the Partnership accounted for operating activities associated with joint ownership of rental equipment as undivided interests, including its proportionate share of each asset with similar wholly-owned assets in its financial statements. Under generally accepted accounting principles, the effects of such activities, if material, should be reported using the equity method of accounting. Therefore, effective January 1, 1996, the Partnership adopted the equity method to account for its investment in such jointly-held assets. The principle differences between the previous accounting method and the equity method relate to the presentation of activities relating to these assets in the statement of operations. Whereas, under the equity method of accounting the Partnership's proportionate share is presented as a single net amount, "equity in net income (loss) of unconsolidated special purpose entities", under the previous method, the Partnership's income statement reflected its proportionate share of each individual item of revenue and expense. Accordingly, the effect of adopting the equity method of accounting has no cumulative effect on previously reported partner's capital or on the Partnership's net income (loss) for the period of adoption. Because the effects on previously issued financial statements of applying the equity method of accounting to investments in jointly-owned assets are not considered to be material to such financial statements taken as a whole, previously issued financial statements have not been restated. However, certain items have been reclassified in the previously issued balance sheet to conform to the current period presentation. PLM EQUIPMENT GROWTH FUND III (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS September 30, 1996 3. Investments in Unconsolidated Special Purpose Entities (continued) The net investment in unconsolidated special purpose entities includes the following jointly-owned equipment (and related assets and liabilities) (in thousands):
September 30, December 31, % Ownership Equipment 1996 1995 ---------------------------------------------------------------------------------------------------------------------- 56% Marine vessel $ 4,040 $ 4,821 45% Mobile offshore drilling unit -- 6,093 50% Aircraft engine -- 656 17% Trust that owns three commercial aircraft, two aircraft engines, and portfolio of aircraft rotables 4,412 5,302 14% Trust that owns seven commercial aircraft -- 3,948 17% Trust that owns six commercial aircraft 3,059 -- ------------------------------------- Investments in unconsolidated special purpose entities $ 11,511 $ 20,820 =====================================
During the nine months ended September 30, 1996, the Partnership sold its 45% investment in a mobile offshore drilling unit, and its 50% investment in an aircraft engine for $13.7 million. The Partnership has beneficial interest in a certain unconsolidated special purpose entity that owns multiple aircraft (the Trust). This Trust contains provisions, under certain circumstances, for allocating specific aircraft to the beneficial owners. During September 1996, PLM Equipment Growth Fund V, an affiliated partnership which also has a beneficial interest in the Trust, renegotiated its senior loan agreement and was required, for loan collateral purposes, to withdraw the aircraft designated to it from the Trust. The result was to restate the percentage ownership of the remaining beneficial owners of the Trust beginning September 30, 1996. This change has no effect on the income or loss recognized in the third quarter of 1996. 4. Cash Distributions Cash distributions are recorded when paid and totaled $9.4 million and $12.6 million for the nine months ended September 30, 1996 and 1995. Cash distributions to unitholders in excess of net income are considered to represent a return of capital. None of the cash distributions to the Limited Partners during the nine months ended September 30, 1996, were deemed to be a return of capital. Cash distributions to unitholders of $9.7 million during the nine months ended September 30,1995, were deemed to be a return of capital. Cash distributions of $0.25 per Depositary Unit were declared on October 24, 1996, and are to be paid on November 15, 1996, to the Unitholders of record as of September 30, 1996. This cash distribution will amount to approximately $2.5 million. PLM EQUIPMENT GROWTH FUND III (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS September 30, 1996 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 estimated net realizable value and is subject to a pending contract for sale. The components of owned equipment are as follows (in thousands):
September 30, December 31, 1996 1995 ---------------------------------------- Equipment held for operating leases: Rail equipment $ 36,148 $ 35,761 Marine containers 13,479 15,015 Marine vessels -- 15,463 Mobile offshore drilling units 9,666 -- Aircraft and aircraft engines 70,615 56,269 Trailers 7,510 7,624 ---------------------------------------- 137,418 130,132 Less accumulated depreciation (75,252 ) (84,207 ) ---------------------------------------- 45,925 Equipment held for sale -- 475 ======================================== Net equipment $ 62,166 $ 46,400 ========================================
Revenues are earned by placing the equipment under operating leases which are generally billed monthly or quarterly. Certain of the Partnership's marine vessels and marine containers are leased to operators of utilization-type leasing pools which include equipment owned by unaffiliated parties. In such instances revenues received by the Partnership consist of a specified percentage of revenues generated by leasing the equipment to sublessees, after deducting certain direct operating expenses of the pooled equipment. Rents for railcars are based on mileage traveled or a fixed rate; rents for all other equipment are based on fixed rates. No equipment was held for sale at September 30, 1996. At December 31, 1995, equipment held for sale included 110 coalcars with a net book value of $0.5 million. These coalcars were sold in March 1996, for $1.3 million. As of September 30, 1996, all owned equipment in the Partnership portfolio was either on lease or operating in PLM-affiliated short-term trailer rental facilities, with the exception of one aircraft, 52 railcars and 33 marine containers. The aggregate carrying value of equipment off-lease was $4.5 million at September 30, 1996. At December 31, 1995, 53 marine containers, 18 tank cars and 2 aircraft engines were off-lease, with an aggregate carrying value of $3.1 million. During the nine months ended September 30, 1996, the Partnership purchased three commercial aircraft and one mobile offshore drilling unit for $28.5 million and incurred acquisition fees of $1.3 million and lease negotiation fees of $0.3 million to TEC. During the nine months ended September 30, 1996, the Partnership disposed of 344 marine containers, 123 railcars of which 110 cars were held for sale at December 31, 1995, two aircraft engines, and 11 trailers, with a combined net carrying value of $3.7 million for combined proceeds of $4.6 million. In addition, the Partnership sold two marine vessels with a carrying value, net of drydock and estimated selling expenses of $3.3 million for proceeds of $8.7 million. During the nine months ended September 30, 1995, the Partnership sold 360 marine containers and 196 railcars with a combined net carrying value of $1.5 million for combined proceeds of $3.1 million. Additionally, the Partnership entered into a sales-type lease related to one marine vessel with a carrying value, net of drydock and estimated selling expenses, of $3.7 million for a sales price equal to the present value of the future lease payments, of $5.0 million. On July 26, 1996, the Charterer exercised its option to buy the marine vessel which was under the sales-type lease for $4.2 million. PLM EQUIPMENT GROWTH FUND III (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS September 30, 1996 6. Repurchase of Depositary Units On December 28, 1992, the Partnership, which is traded on the American Stock Exchange under the symbol GFZ, engaged in a program to repurchase up to 250,000 Depository Units. In the nine months ended September 30, 1996, the Partnership repurchased and canceled 28,500 Depositary Units at a cost of $0.12 million. As of September 30, 1996, the Partnership has repurchased a cumulative total of 128,853 Depositary Units at a total cost of $0.92 million. 7. Debt The General Partner has entered into a joint $50 million credit facility (the "Committed Bridge Facility") on behalf of the Partnership, PLM Equipment Growth Fund IV, PLM Equipment Growth Fund V, PLM Equipment Growth Fund VI , PLM Equipment Growth & Income Fund VII and Professional Lease Management Income Fund I ("Fund I"), all affiliated investment programs, TEC Acquisub, Inc. ("TECAI"), an indirect wholly-owned subsidiary of the General Partner, and American Finance Group, Inc. ("AFG"), a wholly-owned subsidiary of PLM International Inc., which may be used to provide interim financing of up to (i) 70% of the aggregate book value or 50% of the aggregate net fair market value of eligible equipment owned by an affiliate, plus (ii) 50% of unrestricted cash held by the borrower. The Committed Bridge Facility became available on December 20, 1993, and was amended and restated on October 31, 1996, to expire on October 31, 1997. The Committed Bridge Facility also provides for a $5 million Letter of Credit Facility for the eligible borrowers. Outstanding borrowings by Fund I, TECAI, AFG, or PLM Equipment Growth Funds III through VII reduce the amount available to each other under the Committed Bridge Facility. Individual borrowings may be outstanding for no more than 179 days, with all advances due no later than October 31, 1997. The Committed Bridge Facility prohibits the Partnership from incurring any additional indebtedness. Interest accrues at either the prime rate or adjusted LIBOR plus 2.5% at the borrowers option and is set at the time of an advance of funds. Borrowings by the Partnership are guaranteed by the General Partner. As of November 11, 1996, AFG had $39,032,522 in outstanding borrowings and neither the Partnership, TECAI nor any of the programs had any outstanding borrowings. In October 1996, the General Partner revised the "Committed Bridge Facility" and PLM Equipment Growth Fund III is no longer included as a borrower. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (I) Results of Operations Comparison of the Partnership's Operating Results for the Three Months Ended September 30, 1996 and 1995 (A) Owned equipment operations Lease revenues less direct expenses (defined as repairs and maintenance, marine equipment operating, and asset specific insurance expenses) on owned equipment decreased during the third quarter of 1996 when compared to the same quarter of 1995. The following table presents lease revenues less direct expenses by owned equipment type (in thousands):
For the three months ended September 30, 1996 1995 ---------------------------- Aircraft and aircraft engines $ 1,055 $ 1,114 Marine vessels (45 ) 422 Trailers 476 401 Rail equipment 1,340 1,550 Marine containers 355 527 Mobile offshore drilling unit 302 --
Aircraft: Aircraft lease revenues and direct expenses were $1.1 million and $0.04 million, respectively, for the three months ended September 30, 1996, compared to $1.1 million and $0.02 million, respectively, during the same quarter of 1995. The decrease in net contribution was due to the off-lease status of one Boeing 737 aircraft during the third quarter of 1996; Marine vessels: Marine vessel lease revenues and direct expenses were $0.2 million and $0.24 million, respectively, for the three months ended September 30, 1996, compared to $0.5 million and $0.1 million, respectively, during the same quarter of 1995. The decrease in net contribution was due to the sale of both of the Partnership's marine vessels in the third quarter of 1996; Trailers: Trailer lease revenues and direct expenses were $0.6 million and $0.1 million, respectively, for the three months ended September 30, 1996, compared to $0.5 million and $0.1 million, respectively, during the same quarter of 1995. The trailer fleet remained virtually the same for both periods, however, over the past twelve months the number of trailers in the PLM affiliated short-term rental yards has increased due to term leases which expired. These trailers are now earning a higher lease rate while in the rental yards compared to the fixed term lease; Rail equipment: Railcar lease revenues and direct expenses were $2.0 million and $0.7 million, respectively, for the three months ended September 30, 1996, compared to $2.2 million and $0.6 million, respectively during the same quarter of 1995. The decrease in net contribution resulted from lower revenue for the three months ended September 30, 1996 due to the sale of equipment and running repairs required on certain railcars in the fleet during 1996 which were not needed during 1995; Marine containers: Marine container lease revenues and direct expenses were $0.4 million and $2,358, respectively, for the three months ended September 30, 1996, compared to $0.5 million and $6,307, respectively, during the same quarter of 1995. 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 net contribution. Mobile offshore drilling unit: Mobile offshore drilling unit lease revenues and direct expenses were $0.3 million and $3,825, respectively, for the three months ended September 30, 1996. The Partnership acquired and placed into lease service one mobile offshore drilling unit in the third quarter of 1996. (B) Indirect expenses related to owned equipment Total indirect expenses of $4.5 million for the three months ended September 30, 1996, decreased from $3.9 million for the same period of 1995. The variance is explained as follows: (a) an increase in depreciation and amortization expense of $0.7 million from 1995 levels reflecting the acquisition of two aircraft and one mobile offshore drilling unit in the third quarter of 1996, offset by the sale or disposition of certain Partnership assets during the fourth quarter of 1995 and the first three quarters of 1996; (b) an increase of $0.1 million in bad debt expenses from 1995 levels primarily reflecting the General Partner's evaluation of the collectibility of certain receivables; (c) an increase of $0.1 million in general and administrative expense due to increased aircraft inspection expense on one aircraft before it could be re-leased in the third quarter of 1996; (d) a decrease of $0.3 million in interest expense due to the paydown of debt principle due to the sale of assets. (C) Net gain on disposition of equipment was $5.4 million in the third quarter of 1996, from the disposition of two vessels, 122 marine containers, five railcars and four trailers, compared to a gain of $0.9 million in the third quarter of 1995, from the disposition of 138 marine containers and 116 railcars. (D) Interest and other income Interest and other income decreased $0.2 million during the third quarter of 1996 due primarily to lower cash balances available for investments when compared to the same period of 1995. (E) Equity in net income (loss) of unconsolidated special purpose entities Equity in net income (loss) of unconsolidated special purpose entities represents the net income (loss) generated from jointly-owned assets accounted for under the equity method (see Note 3 to financial statements) (in thousands). For the three months ended September 30, ---------------------------- 1996 1995 ---------------------------- Aircraft and aircraft engines $ 696 $ (174 ) Mobile offshore drilling unit 6,579 (37 ) Marine vessel (307 ) (0.9 ) Aircraft: As of September 30, 1996, the Partnership has a partial beneficial interest in two trusts which hold four commercial aircraft, two aircraft engines, and a package of aircraft rotables. The Partnership sold its 50% investment in an aircraft engine for $1.3 million in the third quarter of 1996 and realized a gain of $0.7 million. The Partnership's share of revenues and expenses of the two trusts and the engine was $1.3 million and $0.6 million, respectively, for the third quarter of 1996, compared to $0.2 million and $0.4 million, respectively, during the same quarter of 1995. The increase in income to $0.7 million in the third quarter of 1996 compared to a loss of $0.2 million in the third quarter of 1995 was due to the sale of the aircraft engine for a gain of $0.7 million. The Partnership's share of revenue was higher in the third quarter of 1996 as compared to 1995 levels due to the two trusts acquired in September of 1995. Mobile offshore drilling unit: The Partnership's share of revenues and expenses of mobile offshore drilling unit was $6.6 million and $0.02 million, respectively, for the third quarter of 1996, compared to $0.3 million and $0.34 million, respectively, during the same quarter of 1995. The increase in income to $6.6 million in the third quarter of 1996 compared to a loss of $0.04 million in the third quarter of 1995 was due to the sale of a mobile offshore drilling unit in the third quarter of 1996 at a gain of $6.5 million. Marine vessels: The Partnership's share of revenues and expenses of marine vessels was $0.3 million, and $0.6 million, respectively, during the third quarter of 1996, compared to $0.5 million and $0.5 million, respectively, during the same quarter of 1995. The increase in the loss related to marine vessels was due to higher repairs and maintenance expense and lower revenue due to lower charter rates for the third quarter of 1996 when compared to the same quarter of 1995. (F) Net Income The Partnership's net income of $11.7 million in the third quarter of 1996, increased from net income of $1.1 million in the third quarter of 1995. The Partnership's ability to acquire, operate, or liquidate assets, secure leases, and re-lease those assets whose leases expire during the duration of the Partnership is subject to many factors, therefore, the Partnership's performance for the three months ended September 30, 1996, is not necessarily indicative of future periods. In the third quarter of 1996, the Partnership distributed $2.5 million to the Limited Partners, or $0.25 per Depositary Unit. Comparison of the Partnership's Operating Results for the Nine Months Ended September 30, 1996 and 1995 (A) Owned equipment operations Lease revenues less direct expenses (repairs and maintenance, marine equipment operating expense, and asset specific insurance on owned equipment decreased for the nine months ended 1996 when compared to the same period of 1995. The following table presents results by owned equipment type (in thousands): For the nine months ended September 30, -------------------------------- 1996 1995 -------------------------------- Aircraft and aircraft engines $ 2,089 $ 3,489 Marine vessels 715 1,058 Trailers 1,312 1,085 Rail equipment 3,925 3,927 Marine containers 1,175 1,472 Mobile offshore drilling unit 302 -- Aircraft: Aircraft lease revenues and direct expenses were $3.4 million and $1.3 million, respectively, for the nine months ended September 30, 1996, compared to $3.6 million and $0.1 million, respectively during the same quarter of 1995. The decrease in net contribution was due to extensive repairs of $1.2 million needed on one aircraft before it could be re-leased and the off-lease status of this aircraft during the third quarter of 1996; Marine vessels: Marine vessel lease revenues and direct expenses were $1.2 million and $0.5 million, respectively, for the nine months ended September 30, 1996, compared to $2.2 million and $1.1 million, respectively during the same period of 1995. The decrease in net contribution was due to the sale of one marine vessel during the second quarter of 1995 and the sale of two marine vessels during the third quarter of 1996; Trailers: Trailer lease revenues and direct expenses were $1.5 million and $0.2 million, respectively, for the nine months ended September 30, 1996, compared to $1.3 million and $0.2 million, respectively during the same quarter of 1995. The trailer fleet remained virtually the same for both periods, however, over the past twelve months the number of trailers in the PLM affiliated short-term rental yards has increased due to term leases which expired. These trailers are now earning a higher lease rate while in the rental yards compared to the fixed term leases; Rail equipment: Railcar lease revenues and direct expenses were $5.8 million and $1.9 million, respectively, for the nine months ended 1996, compared to $5.9 million and $2.0 million, respectively during the same quarter of 1995. The decrease in railcar contribution resulted from lower revenue for the nine months ended September 30, 1996 due to sale of equipment, offset by running repairs required on certain railcars in the fleet during 1995 which were not needed during 1996; Marine containers: Marine container lease revenues and direct expenses were $1.2 million and $8,504, respectively, for the nine months ended September 30, 1996, compared to $1.5 million and $16,608, respectively during the same quarter of 1995. 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 net contribution. Mobile offshore drilling unit: Mobile offshore drilling unit lease revenues and direct expenses were $0.3 million and $3,825, respectively, for the nine months ended September 30, 1996. The Partnership acquired and placed into lease service one mobile offshore drilling unit in the third quarter of 1996. (B) Indirect operating expenses related to owned equipment operations Total indirect expenses of $12.3 million for the nine months ended September 30, 1996, increased from $12.1 million for the same period of 1995. The variance is explained as follows: (a) an increase of $0.5 million in bad debt expense from 1995 levels primarily reflecting the Partnership's evaluation of collectibility of certain receivable balances; (b) an increase of $0.1 million in depreciation and amortization expense from 1995 levels reflecting the Partnership's acquisition of two aircraft and one mobile offshore drilling unit in the nine months ended September 30, 1996, offset by the sale or disposition of certain Partnership assets during the fourth quarter of 1995 and the first three quarters of 1996. In addition, certain aircraft are depreciated using the double-declining balance depreciation method based on the life of the lease term; (c) a decrease of $0.4 million in interest expense due to the paydown of debt principal due to the sale of assets. (C) Net gain on disposition of equipment was $6.3 million for the nine months ended September 30, 1996 from the disposition of two aircraft engines, two marine vessels, 344 marine containers, 11 trailers, and 123 railcars, compared to a gain of $2.9 million in the same period of 1995 from the disposition of 360 marine containers, 196 railcars, and one marine vessel. The sale of the vessel in the first quarter of 1995 was a sales-type lease. (D) Interest and other income decreased by $0.4 million in the first nine months of 1996 compared to 1995 due primarily to lower cash balances available for investments when compared to the same period of 1995. (E) Equity in net income (loss) of unconsolidated special purpose entities Equity in net income (loss) of unconsolidated special purpose entities represents the net income (loss) generated from operation of jointly-owned assets accounted for under the equity method (see Note 3 to financial statements)(in thousands).
For the nine months ended September 30, ---------------------------------- 1996 1995 ---------------------------------- Aircraft and aircraft engines $ 869 $ (127 ) Marine vessels (538 ) (93 ) Mobile offshore drilling unit 6,574 50
Aircraft: As of September 30, 1996, the Partnership has a partial beneficial interest in two trusts which hold four commercial aircraft, two aircraft engines, and a package of aircraft rotables. The Partnership sold its 50% investment in an aircraft engine for $1.3 million in the third quarter of 1996. The Partnership's share of revenues and expenses of the two trusts and the engine was $2.9 million and $2.0 million, respectively, for the nine months ended September 30, 1996, compared to $0.3 million and $0.4 million, respectively, during the same period of 1995. The increase in income to $0.9 million in the third quarter of 1996 compared to a loss of $0.1 million for the nine months ended September 30, 1995 was due to the sale of the aircraft engine for a gain of $0.7 million. The Partnership's share of revenue was higher in the nine months ended September 30, 1996 as compared to 1995 levels due to the two trusts acquired in September of 1995. Marine vessels: The Partnership's share of revenues and expenses of marine vessels was $1.0 million and $1.5 million, respectively, for the nine months ended September 30, 1996, compared to $1.3 million and $1.4 million, respectively, for the same period in 1995. The increase in the loss related to marine vessels was due to higher repairs and maintenance expenses, higher marine operating expenses, and lower revenue due to lower charter rates for the nine months ended September 30, 1996 when compared to 1995 levels. Mobile offshore drilling unit: The Partnership's share of revenues and expenses of the mobile offshore drilling unit was $7.2 million and $0.6 million, respectively, for the nine months ended September 30, 1996, compared to $1.0 million and $1.0 million, respectively, for the same period of 1995. The increase in income to $6.6 million for the nine months ended September 30, 1996, as compared to a net income of $0.1 million for the nine months ended September 30, 1995, was due to the sale of the mobile offshore drilling unit in the third quarter of 1996 with a net book value of $5.9 million for proceeds of $12.4 million at a gain of $6.5 million. (F) Net Income The Partnership's net income of $11.3 million for the nine months ended September 30, 1996, increased from net income of $2.9 million in the same period in 1995. The Partnership's ability to acquire, operate, or liquidate assets, secure leases, and re-lease those assets whose leases expire during the duration of the Partnership is subject to many factors. Therefore, the Partnership's performance in the nine months ended September 30, 1996, is not necessarily indicative of future periods. The Partnership distributed $8.9 million to the Limited Partners, or $0.90 per Depositary Unit in the nine months ended September 30, 1996. (II)Financial Condition - Capital Resources, Liquidity, and Distributions The Partnership purchased its initial equipment portfolio with capital raised from its initial equity offering and permanent debt financing. No further capital contributions from original partners are permitted under the terms of the Partnership's Limited Partnership Agreement. In addition the Partnership, under its current loan agreement, does not have the capacity to incur additional debt. Therefore, the Partnership relies on operating cash flow to meet its operating obligations, to make cash distributions to limited partners and increase the Partnership's equity portfolio with any remaining available surplus cash. The Partnership has one loan outstanding with a face amount of $40.6 million with interest at 1.5% over LIBOR. The loan allows the pay down and borrowing of funds in conjunction with the sale and subsequent purchase of assets during the reinvestment phase of the Partnership. During the first year following conversion to a term loan, beginning September 30, 1996, quarterly principal payments equal to 75% of net proceeds from asset sales will be due. Beginning the second year commencing December 31, 1997, quarterly principal payments will be equal to 75% of net proceeds from asset sales from September 30, 1997, or payments equal to 9.0% of the facility balance at September 30, 1997. During the first nine months of 1996, the Partnership paid down $19.6 million of the outstanding loan balance and redrew $19.1 million. The General Partner has entered into a joint $50 million credit facility (the "Committed Bridge Facility") on behalf of the Partnership, PLM Equipment Growth Fund IV, PLM Equipment Growth Fund V, PLM Equipment Growth Fund VI, PLM Equipment Growth & Income Fund VII and Professional Lease Management Income Fund I ("Fund I"), all affiliated investment programs, TEC Acquisub, Inc. ("TECAI"), an indirect wholly-owned subsidiary of the General Partner, and American Finance Group, Inc. ("AFG"), a wholly-owned subsidiary of PLM International Inc., which may be used to provide interim financing of up to (i) 70% of the aggregate book value or 50% of the aggregate net fair market value of eligible equipment owned by an affiliate, plus (ii) 50% of unrestricted cash held by the borrower. The Committed Bridge Facility became available on December 20, 1993, and was amended and restated on October 31, 1996, to expire on October 31, 1997. The Committed Bridge Facility also provides for a $5 million Letter of Credit Facility for the eligible borrowers. Outstanding borrowings by Fund I, TECAI, AFG, or PLM Equipment Growth Funds III through VII reduce the amount available to each other under the Committed Bridge Facility. Individual borrowings may be outstanding for no more than 179 days, with all advances due no later than October 31, 1997. The Committed Bridge Facility prohibits the Partnership from incurring any additional indebtedness. Interest accrues at either the prime rate or adjusted LIBOR plus 2.5% at the borrowers option and is set at the time of an advance of funds. Borrowings by the Partnership are guaranteed by the General Partner. As of November 11, 1996, AFG had $39,032,522 in outstanding borrowings and neither the Partnership, TECAI nor any of the other programs had any outstanding borrowings. In October 1996, the General Partner revised the "Committed Bridge Facility" and PLM Equipment Growth Fund III is no longer included as a borrower. (III) Delisting of Partnership Units and Depositary Unit Repurchase Plan The General Partner delisted the Partnership's Depositary units from the American Stock Exchange (AMEX) under the symbol GFZ on April 8, 1996. The last day for trading on the AMEX was March 22, 1996. Under the Internal Revenue Code (the Code) the Partnership was classified as a Publicly Traded Partnership. For the past three years the Partnership has engaged in a plan to purchase up to 250,000 Depositary Units. For the nine months ended September 30, 1996, the Partnership repurchased 28,500 Depositary Units at a cost of $0.12 million. As of September 30, 1996, the Partnership has repurchased a cumulative total of 128,853 Depositary Units at a total cost of $0.92 million. (IV) Trends The Partnership's operation of a diversified equipment portfolio in a broad base of markets is intended to reduce its exposure to volatility in individual equipment sectors. Throughout 1995 and the first part of 1996, market conditions, supply and demand equilibrium, and other factors varied in several markets. In the container and refrigerated over-the-road trailer markets, oversupply conditions, industry consolidations, and other factors resulted in falling rates and lower returns. In the dry over-the-road trailer markets, strong demand and a backlog of new equipment deliveries produced high utilization and returns. The marine vessel, rail, and mobile offshore drilling unit markets could be generally categorized by increasing rates as the demand for equipment is increasing faster than new additions net of retirements. Finally, demand for narrowbody stage II aircraft, such as those owned by the Partnership, has increased as expected savings from newer narrowbody aircraft have not materialized and deliveries of the newer aircraft have slowed down. These trends are expected to continue for the near term. These different markets have had individual effects on the performance of Partnership equipment - in some cases resulting in declining performance, and in others, in improved performance. 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, governmental or other regulations, and others. The unpredictability of some 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 continuously 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 equipment markets in which it determines that it cannot operate equipment and achieve acceptable rates of return. Alternatively, the General Partner martnership's equipment in these markets. The General Partner may decide to reduce the Partnership's exposure to equipment markets in which it determines that it cannot operate equipment and achieve acceptable rates of return. Alternatively, the General Partner may make a determination to enter equipment markets in which it perceives opportunities to profit from supply-demand instabilities or other market imperfections. The Partnership intends to use excess cash flow, if any, after payment of expenses, loan principal, and cash distributions to acquire additional equipment during the first seven years of Partnership operations. The General Partner believes these acquisitions may cause the Partnership to generate additional earnings and cash flow for the Partnership. 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 12, 1996 By: /s/ David Davis --------------- David J. Davis Vice President and Corporate Controller EX-27 2
5 1,000 9-MOS DEC-31-1996 SEP-30-1996 2,232 5,890 1,411 1,350 0 0 137,418 75,252 83,755 0 0 0 0 0 32,198 83,755 0 20,635 0 13,933 0 0 2,259 11,348 0 11,348 0 0 0 11,348 0 0
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