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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 1995.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 1-10813
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PLM EQUIPMENT GROWTH FUND III
(Exact name of registrant as specified in its charter)
California 68-0146197
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Market, Steuart Street Tower
Suite 900, San Francisco, CA 94105-1301
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code (415) 974-1399
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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 ______
Class Outstanding at March 14, 1996
Limited Partnership Depositary Units 9,871,926
General Partnership Units: 1
An index of exhibits filed with this Form 10-K is
located at page 44.
Total number of pages in this report: 47
PART I
Item 1. BUSINESS
(A) Background
On October 27, 1987, PLM Financial Services, Inc. (FSI or the General
Partner), a wholly-owned subsidiary of PLM International, Inc. (PLM
International), filed a Registration Statement on Form S-1 with the Securities
and Exchange Commission with respect to a proposed offering of 10,000,000
Depositary units (the Units) in PLM Equipment Growth Fund III, a California
limited partnership (the Partnership, the Registrant or EGF III). The
Partnership's offering became effective on March 21, 1988. FSI, as general
partner, owns a 5% interest in the Partnership. The Partnership engages in the
business of owning and leasing transportation equipment to be operated by and/or
leased to various shippers and transportation companies.
The Partnership was formed to engage in the business of owning and managing
a diversified pool of used and new transportation-related equipment and certain
other items of equipment. The Partnership's primary objectives are:
(i)to acquire a diversified portfolio of long-lived, low obsolescence,
high residual value equipment with the net proceeds of the initial partnership
offering, supplemented by debt financing if deemed appropriate by the General
Partner. The General Partner intends to acquire the equipment at what it
believes to be below inherent values and to place the equipment on lease, or
under other contractual agreements with creditworthy lessees and operators of
equipment;
(ii)to generate sufficient net operating cash flow from lease operations to
meet existing liquidity requirements and to generate cash distributions to the
Limited Partners until such time as the General Partner commences the orderly
liquidation of the Partnership assets or unless the Partnership is terminated
earlier upon sale of all Partnership property or by certain other events;
(iii) to selectively sell and purchase other equipment to add to the
Partnership's initial equipment portfolio. The General Partner intends to sell
equipment when it believes that, due to market conditions, market prices for
equipment exceed inherent equipment values or expected future benefits from
continued ownership of a particular asset will not equal or exceed other
equipment investment opportunities. Proceeds from these sales, together with
excess net operating cash flow from operations that remain after cash
distributions have been made to the Partners, will be used to acquire additional
equipment throughout the intended seven year reinvestment phase of the
Partnership;
(iv)to preserve and protect the value of the portfolio through quality
management, maintaining diversity and constantly monitoring equipment markets.
The offering of the Units of the Partnership closed on May 11, 1989. On
August 16, 1991, the Units of the Partnership began trading on the American
Stock Exchange. Thereupon, each Unitholder received a depositary receipt
representing ownership of the number of Units owned by such Unitholder. As of
December 31, 1995, there were 9,899,573 depositary units (Depositary Units)
outstanding. The General Partner contributed $100 for its 5% general partner
interest in the Partnership.
During the first seven years of operations, a portion of cash flow and
surplus funds will be used to purchase additional equipment and a portion will
be distributed to the partners. Beginning after the Partnership's seventh year
of operations, cash flow and surplus funds, if any, will not be reinvested and
will be distributed to the partners. The Partnership's seventh year of
operations ends on December 31, 1996. Beginning in the eleventh year of
operations of the Partnership, the General Partner will commence to liquidate
the assets of the Partnership in an orderly fashion, unless the Partnership is
terminated earlier upon sale of all Partnership property or by certain other
events.
Table 1, below, lists the equipment and the cost of the equipment in the
Partnership portfolio as of December 31, 1995 (in thousands):
TABLE 1
Units Type Manufacturer Cost
- ---------------------------------------------------------------------------------------------------------------------
Equipment held for operating leases:
0.56 Bulk carrier marine vessel Naikai Zosen, Naikai Shpbldg. $ 7,163
1 Bulk carrier marine vessel Kanasashi 5,421
1 Bulk carrier marine vessel Tsuneishi 10,041
1 727-100QC commercial aircraft Boeing 5,784
3 737-200A commercial aircraft Boeing 39,138
1 DC-9-32 commercial aircraft McDonnell Douglas 10,028
0.50 Aircraft engine CFM 56 General Electric 1,594
2 Commercial aircraft engines General Electric 5,812
0.17 Two trusts consisting of:
Three 737-200 stage II commercial aircraft, Boeing 4,706
Two aircraft engines and Pratt Whitney 195
portfolio of aircraft rotables Various 325
1,522 Marine containers Various 15,015
120 Coal cars Various 4,829
1,342 Tank cars Various 30,932
129 Dry trailers Stoughton and Strick 752
50 Domestic trailers Various 1,878
164 Dry piggyback trailers Various 2,534
116 Utility refrigerated trailers Various 2,460
--------------
Equipment held for operating leases 148,607
Equipment held for sale:
0.45 Mobile offshore drilling unit Ingalls Shipbuilding 12,681
110 Coal cars Various 1,302
--------------
Total equipment $ 162,590
==============
Jointly owned: EGF III (56%) and an affiliated partnership.
Jointly owned: EGF III (50%) and an affiliated partnership.
Jointly owned: EGF III (17%) and three affiliated partnerships (83%).
Jointly owned: EGF III (45%) and an affiliated partnership.
Includes proceeds from capital contributions, operations, and Partnership
borrowings invested in equipment. Includes costs capitalized subsequent to
the date of acquisition and equipment acquisition fees paid to PLM
Transportation Equipment Corporation. All equipment was used equipment at
time of purchase except for 50 domestic containers and 164 dry piggback
trailers.
The equipment is generally leased under operating leases with terms of one to
six years. Some 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 pooled equipment to sub-lessees, after deducting certain direct operating
expenses of the pooled equipment.
At December 31, 1995, approximately 89% of the Partnership's trailer
equipment is operated in rental yards owned and maintained by PLM Rental, Inc.,
the short-term trailer rental subsidiary of PLM International. Revenues
collected under short-term rental agreements with the rental yards' customers
are distributed monthly to the owners of the related equipment. Direct expenses
associated with the equipment and an allocation of other direct expenses of the
rental yard operations are billed to the Partnership.
The lessees of the equipment include, but are not limited to: British
Midland Airways Ltd., DHL Airways, Inc., Atlantic Bulk Shipping, Continental
Airlines, Inc., and East West Airlines, Inc. As of December 31, 1995, all of the
equipment was on lease or in rental yards except 53 marine containers, 18 tank
cars, and two aircraft engines.
B) Management of Partnership Equipment
The Partnership has entered into an equipment management agreement with PLM
Investment Management, Inc. (IMI), a wholly-owned subsidiary of FSI, for the
management of the equipment. IMI agreed to perform all services necessary to
manage the transportation equipment on behalf of the Partnership and to perform
or contract for the performance of all obligations of the lessor under the
Partnership's leases. In consideration for its services and pursuant to the
Partnership Agreement, IMI is entitled to a monthly management fee. (See
Financial Statement notes 1 and 2).
(C) Competition
(1) Operating Leases vs. Full Payout Leases
Generally the equipment owned by the Partnership is leased out on an operating
lease basis wherein the rents owed during the initial noncancelable term of the
lease are insufficient to recover the Partnership's purchase price of the
equipment. The short to mid-term nature of operating leases generally commands a
higher rental rate than longer term, full payout leases and offers lessees
relative flexibility in their equipment commitment. In addition, the rental
obligation under the operating lease need not be capitalized on the lessee's
balance sheet.
The Partnership encounters considerable competition from lessors utilizing
full payout leases on new equipment, i.e., leases which have terms equal to the
expected economic life of the equipment. Full payout leases are written for
longer terms and for lower rates than the Partnership offers. While some lessees
prefer the flexibility offered by a shorter term operating lease, other lessees
prefer the rate advantages possible with a full payout lease. Competitors of the
Partnership may write full payout leases at considerably lower rates, or larger
competitors with a lower cost of capital may offer operating leases at lower
rates, and as a result, the Partnership may be at a competitive disadvantage.
(2) Manufacturers and Equipment Lessors
The Partnership also competes with equipment manufacturers who offer operating
leases and full payout leases. Manufacturers may provide ancillary services
which the Partnership cannot offer, such as specialized maintenance service
(including possible substitution of equipment), training, warranty services, and
trade-in privileges.
The Partnership competes with many equipment lessors, including ACF
Industries, Inc. (Shippers Car Line Division), General Electric Railcar Services
Corporation, Greenbrier Leasing Company, Polaris Aircraft Leasing Corp., GPA
Group Plc, and other limited partnerships which lease the same types of
equipment.
(D) Demand
The Partnership invests in transportation-related capital equipment and in
"relocatable environments." "Relocatable environments" refer to capital
equipment constructed to be self-contained in function but transportable,
example of which includes a mobile offshore drilling unit. A general distinction
can be drawn between equipment used for the transport of materials and
commodities or people. With the exception of aircraft leased to passenger air
carriers, the Partnership's equipment is used primarily for the transport of
materials.
The following describe the markets for the Partnership's equipment:
(1) Commercial aircraft
International airlines are expected to post an aggregate $5.7 billion profit for
1995, an indication that the world air transport industry made a dramatic
turnaround during the year. While U.S. air traffic growth slowed during 1995,
capacity levels decreased, resulting in higher load factors, lower unit costs,
and improved yields. Worldwide, airlines took delivery of 517 commercial jets,
the lowest number since 1988. A continuing decrease in 1996 deliveries is
expected to improve the supply-demand balance.
Several factors have favorably impacted the market for "second generation"
commercial jets, the type owned by the Partnership, including Boeing 727s,
737-200s, and DC9-32s. In addition to fewer deliveries, the new generation of
narrowbody aircraft has as yet failed to produce any significant savings in
carriers' direct operating costs, and there are clear indications of further
consolidation within the U.S. and European markets. These trends, expected to
continue through 1996, have led to increases in demand, rental rates, and market
values for "second generation" commercial aircraft.
(2) Aircraft Engines
Most airlines maintain an inventory of spare engines in order to minimize
aircraft downtime due to engine maintenance and overhaul requirements.
Although stage II engines do not meet future U.S. and European noise
regulations, those owned by the Partnership are the most advanced stage II
engines produced, compatible with all models of Boeing 727, 737-200, and
McDonnell Douglas DC-9-30 series aircraft. The resurgence in demand for
narrowbody aircraft in the U.S. and Europe has favorably impacted lease rates
and values for these stage II engines. The Partnership's stage III engines,
operable on Boeing 737, McDonnell Douglas DC 10-30, and Airbus A300 series
aircraft, meet the most stringent U.S. Federal Aviation Administration (FAA)
regulatory operating requirements and thus are not subject to regulatory
obsolescence. Due to diminishing demand for and increased retirement of DC 10-30
and Airbus A300 aircraft, demand for compatible stage III engines is relatively
weak. While this trend is expected to continue in the near future, demand for
Boeing 737-compatible stage III engines is relatively strong as 737s remain the
most widely-used aircraft in the world fleet.
(3) Aircraft Rotables
Aircraft rotables are a predetermined quantity of replacement spare parts held
by airlines as inventory. They can be removed from an aircraft or engine,
overhauled, and then recertified and refitted to the aircraft in "as-new"
condition. Rotables carry specific identification numbers and can thus be
individually tracked. They include landing gear, certain engine components,
avionics, auxiliary power units, replacement doors, control surfaces, pumps,
valves, and other similar equipment. The useful life of a rotable is usually
measured in terms of either time in service or number of takeoffs and landings
(cycles). While specific guidelines apply to rotables for the length of time or
number of cycles between overhauls, there is no preset limit to the number of
times a rotable can be overhauled and recertified. In practice, a component will
be overhauled until the cost to do so exceeds its replacement cost. Airlines are
expected to continue utilizing off-balance sheet financing such as
sale-leasebacks and inventory pooling arrangements to finance spare parts
inventories.
(4) Marine Containers
The container market ended 1994 with expectations that the strengthening market
experienced late in the year would continue into 1995. Such was not the case as
the usual seasonal slowdown during the post-Christmas time period extended
longer than expected, and utilization in 1995 did not achieve 1994 levels. While
per diem rates increased somewhat by summertime, they did not fully recover from
the 8-12% decrease experienced during the preceding two years. Aggressive
pricing by several major leasing companies attempting to capture greater market
share is expected to put further pressure on refrigerated container utilization
and per diem rates. On the secondary markets, there continues to be significant
increases in supply as primarily operators dispose of large numbers of older
equipment. Since the Partnership owns predominately older containers, it will
continue to be impacted by these industry trends.
During 1996, major leasing companies are expected to reduce purchases of
new equipment in response to soft market conditions. This anticipated reduction
in supply should lead to a strengthening in utilization and per diem rates later
in the year as demand catches up to supply.
(5) Railcars
Nearly all the major railroads reported substantial revenue increases during
1995. As additional industry consolidation is expected in 1996, these mergers
should produce further operating efficiencies leading to continued increases in
revenues and profits. Car loadings rose approximately 3% during 1995 with
chemicals, metals, and grain experiencing the largest gains. Car demand for
liquefied petroleum gas and liquid fertilizer service was also strong throughout
the year.
The Partnership's fleet experienced almost 100% utilization during 1995.
The few cars out of service were undergoing scheduled maintenance or repair. The
General Partner believes rates are at the top of the cycle for all types of cars
owned by the Partnership. With demand continuing high, rental rates for most
types of cars owned by the Partnership are expected to remain relatively strong
during 1996.
On the supply side, industry experts predict approximately 55,000 new car
builds and 40,000 retirements for a net gain of about 1.2% in the total U.S.
fleet during 1996. While car builders are still busy, orders are not coming in
as rapidly as in the last two years, so it is likely additions will not
significantly outpace retirements this year.
(6) Marine Vessels
The Partnership's vessels operate primarily in spot charters or pooled vessel
operations. In contrast to longer-term, fixed-rate time charter or bareboat
charters, this operating approach provides greater flexibility in response to
changes in demand and, the General Partner believes, has the potential to
achieve a higher average return over the period the vessel is owned.
Over the first half of 1995, freight rates for small to medium-sized dry
bulk vessels, the type owned by the Partnership, continued the improvement begun
in late 1994. The Baltic Freight Index (an industry standard index for dry
freight rates) hit an all-time high in May 1995. Although this index later
declined, it ended 1995 at a level slightly higher than the year before. In
1996, freight rates are expected to hold at current levels, with some
improvement possible over the latter half of the year. On the supply side,
newbuilding orders for the classes of vessels owned by the Partnership are at
nearly the same levels as in 1995. On a long-term basis, the level of scrappings
and retirements will be influenced by market freight rates which are not
expected to grow at more than a moderate level. Another factor which affects the
volume of newbuilding is government subsidy policies, particularly in those
countries which are members of the Organization for Economic Cooperation &
Development (OECD) While the OECD nations did not come to a firm agreement
regarding ship building subsidies in 1995, it appears that in 1996 and beyond,
subsidies should decline, reducing newbuilding levels.
(7) Mobile Offshore Drilling Units (Rigs)
Demand for offshore drilling services utilizing jack-up rigs increased slightly
in 1995 over the prior two years due principally to continued demand for U.S.
natural gas and improved returns from international oil drilling. Utilization
and day rates have been bolstered by a continued decline in the supply of rigs.
In 1995, 7 of the 264 rigs in service were retired from the active drilling
fleet and only 1 rig was added. Another factor contributing to stronger contract
day rates has been the continued consolidation in rig ownership through
corporate mergers and rig acquisitions by larger market players. This
consolidation has had a recognizable effect on stabilizing day rates in times of
low utilization and increasing day rates faster in times of increasing
utilization.
Demand in the U.S. Gulf of Mexico, the largest market for jack-up rigs, is
expected to continue at existing levels, while demand in international markets,
primarily the North Sea and offshore India, should increase. On a long-term
basis, overall demand is expected to continue at the present level and supply
should continue to decline as older rigs are retired. The overall effect of
these trends should be increased utilization, day rates, and rig market values
as demand and supply reach equilibrium. Some industry experts predict that by
the year 2000, day rates will increase to levels which will induce limited
building of new rigs.
(8) Intermodal Trailers
After three robust years, growth in the intermodal trailer market was flat in
1995. This lack of growth resulted from several factors including a lackluster
domestic economy, environmental issues, the peso devaluation, a new teamsters
agreement allowing more aggressive pricing, and consolidation among U.S.
railroads. Industry experts believe these factors may lead to an improved
balance in supply and demand and encourage suppliers to retire older, obsolete
equipment in 1996. The Partnership's piggyback trailer fleet, with an average
age of 7 years compared to the industry norm of 10 years, experienced better
utilization than that of its competitors, averaging near 80% during 1995.
Expansion and utilization levels in the intermodal market are anticipated to
improve in 1996 and trailer loadings are expected to increase 3-4% per year
throughout the rest of the decade.
(9) Over-the-Road Dry Trailers
The over-the-road dry trailer market remained strong in 1995 due to record
freight movements and equipment utilization. The General Partner achieved
excellent utilization levels in 1995 averaging over 85%. Current levels show
some signs of softening demand in comparison to the record-setting levels of
1994, when users encountered backlogs of up to 18 months for new equipment
delivery. While new production is expected to decline over the next few years,
this should not dramatically affect utilization levels, as plenty of older,
obsolete equipment needs to be retired.
The General Partner continues to transfer trailers with expiring lease
terms to the short-term trailer rental facilities operated by PLM Rental, Inc.
The General Partner believes the strong performance of units in these rental
facilities reflects the demand for short-term leases mentioned above and expects
this trend to continue as long as the current shortage of trailers exists.
(10) Over-the-Road Refrigerated Trailers
After a record year in 1994, demand for refrigerated trailers softened in 1995.
This softened demand affected overall performance in 1995. Adverse weather
conditions reduced the volume of fresh fruit and produce available, so
refrigerated equipment operators focused on hauling generic freight, adding to
the dry freight market while reducing capacity and demand in
temperature-controlled markets.
Heavy consolidation in the trucking industry induced carriers to work off
excess equipment inventory from 1994 levels. However, inventory is expected to
return to more normal levels in 1996 and continue throughout the rest of the
decade, as excess capacity is retired, newer refrigeration technology standards
become more defined, and environmentally-damaging refrigerants are phased out of
service.
(E) Government Regulations
The use, maintenance, and ownership of equipment is regulated by federal, state,
local and/or foreign governmental authorities. Such regulations may impose
restrictions and financial burdens on the Partnership's ownership and operation
of equipment. Changes in government regulations, industry standards, or
deregulation may also affect the ownership, operation and resale of the
equipment. Substantial portions of the Partnership's equipment portfolio are
either registered or operated internationally. Such equipment may be subject to
adverse political, government, or legal action, including the risk of
expropriation or loss arising from hostilities. Certain of the Partnership's
equipment is subject to extensive safety and operating regulations which may
require the removal from service or extensive modification of such equipment to
meet these regulations at considerable cost to the Partnership. Such regulations
include (but are not limited to):
(1) the U.S. Oil Pollution Act of 1990 (which established liability
for operators and owners of vessels, mobile offshore drilling
units, etc. that create environmental pollution).
(2) the U.S. Department of Transportation's Aircraft Capacity Act of
1990 (which limits or eliminates the operation of commercial
aircraft in the U.S. that do not meet certain noise, aging, and
corrosion criteria);
(3) the Montreal Protocol on Substances That Deplete the Ozone layer
and the U.S. Clean Air Act Amendments of 1990 (which call for the
control and eventual replacement of substances that have been
found to cause or contribute significantly to harmful effects on
the stratospheric ozone layer and which are used extensively as
refrigerants in refrigerated marine cargo containers,
over-the-road trailers, etc.);
(4) the U.S. Department of Transportation's Hazardous Materials
Regulations (which regulate the classification of and packaging
requirements for hazardous materials and which apply particularly
to the Partnership's tank cars).
ITEM 2. PROPERTIES
The Partnership neither owns nor leases any properties other than the
equipment it has purchased for leasing purposes. At December 31, 1995, the
Partnership owned a portfolio of transportation equipment as described in Part
I, Table 1.
The Partnership maintains its principal office at One Market, Steuart
Street Tower, Suite 900, San Francisco, California 94105-1301. All office
facilities are provided by FSI without reimbursement by the Partnership.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Partnership's limited partners
during the fourth quarter of its fiscal year ended December 31, 1995.
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED DEPOSITARY UNIT
MATTERS
The Partnership's Depositary Units began trading (under the ticker symbol GFZ)
on August 16, 1991, on the American Stock Exchange (AMEX). As of March 14, 1996,
there were 9,871,926 Depositary Units outstanding. There are approximately
12,500 Depositary Unitholders of record as of the date of this report. Under the
Internal Revenue Code (the Code) the Partnership is classified as a Publicly
Traded Partnership. The Code treats all Publicly Traded Partnerships as
corporations if they remain publicly traded after December 31, 1997. Treating
the Partnership as a corporation will mean the Partnership itself will become a
taxable, rather than a "flow through" entity. As a taxable entity, the income of
the Partnership will be subject to federal taxation at both the partnership
level and at the investor level to the extent that income is distributed to an
investor. In addition, the General Partner believes that the trading price of
the Depositary Units may be distorted when the Partnership begins the final
liquidation of the underlying equipment portfolio. In order to avoid taxation of
the Partnership as a corporation and to prevent unfairness to Unitholders, the
General Partner has requested to delist the Partnership's Depositary Units from
the AMEX prior to March 29, 1996. The last day for trading on the AMEX will be
March 22, 1996. While the Partnership's Depositary Units will no longer be
publicly traded on a national stock exchange, the General Partner will continue
to manage the equipment of the Partnership and prepare and distribute quarterly
and annual reports and Forms 10-Q and 10-K in accordance with the Securities and
Exchange Commission requirements. In addition, the General Partner will continue
to provide pertinent tax reporting forms and information to Unitholders. The
General Partner anticipates that following delisting, an informal market for the
Partnership's units may develop in the secondary marketplace similar to that
which currently exists for non-publicly traded partnerships.
Pursuant to the terms of the Partnership Agreement, the General Partner is
generally entitled to a 5% interest in the profits and losses and distributions
of the Partnership. The General Partner also is entitled to a special allocation
of any gains from the sale of the Partnership's assets in an amount sufficient
to eliminate any negative balance in the General Partner's capital account. The
General Partner is the sole holder of such interests.
Table 2, below, sets forth the high and low reported prices of the
Partnership's Depositary Units for 1995 and 1994, as reported by the AMEX as
well as cash distributions paid per Depositary Unit.
TABLE 2
Cash
Distributions
Paid Per
Reported Trade Depositary
Prices Unit
-----------------------------------------
Calendar Period High Low
1995
1st Quarter $ 8.38 $ 7.00 $ 0.40
2nd Quarter $ 8.63 $ 7.31 $ 0.40
3rd Quarter $ 8.13 $ 6.63 $ 0.40
4th Quarter $ 7.00 $ 4.56 $ 0.40
1994
1st Quarter $ 12.00 $ 10.25 $ 0.40
2nd Quarter $ 11.50 $ 10.13 $ 0.40
3rd Quarter $ 10.63 $ 9.13 $ 0.40
4th Quarter $ 10.63 $ 7.38 $ 0.40
The Partnership has engaged in a plan to repurchase up to 250,000
Depositary Units. During the period from January 1, 1995, to December 31, 1995,
the Partnership repurchased 65,900 Depositary Units at a total cost of $0.4
million. From January 1, 1996 to March 14, 1996, the Partnership repurchased
27,647 Depositary Units at a total cost of $0.12 million.
ITEM 6. SELECTED FINANCIAL DATA
Table 3, below, lists selected financial data for the Partnership:
TABLE 3
For the years ended
December 31, 1995, 1994, 1993, 1992, and 1991
(thousands of dollars, except per unit amounts)
1995 1994 1993 1992 1991
------------------------------------------------------------------------------
Operating results:
Total revenues $ 28,055 $ 40,247 $ 42,149 $ 43,722 $ 55,289
Net gain on disposition
of equipment 2,936 2,863 1,707 1,081 5,837
Loss on revaluation of
equipment -- (1,082) (92) (8,292) --
Net income (loss) 2,706 252 (241) (11,248) (33)
At year-end:
Total assets $ 84,259 $ 98,779 $ 117,531 $ 132,043 $ 158,681
Total liabilities 53,922 54,028 56,031 53,232 46,516
Notes payable 41,000 41,000 40,866 40,865 40,865
Cash distributions $ 16,737 $ 16,811 $ 16,829 $ 22,106 $ 21,578
Cash distributions which
represent a return of capital $ 14,031 $ 15,970 $ 15,988 $ 21,001 $ 20,499
Per Depositary Unit:
Net income (loss) $ 0.19 $ (0.06) $ (0.11) $ (1.24) $ (0.33)
Cash distributions $ 1.60 $ 1.60 $ 1.60 $ 2.10 $ 2.05
Cash distributions which
represent a return of capital $ 1.42 $ 1.60 $ 1.60 $ 2.10 $ 2.05
After reduction of $0.7 million ($.07 per Depositary Unit) resulting from a
special allocation to the General Partner relating to the gross gain on the
sale of assets. (See Note 1 to the financial statements.)
After reduction of $0.8 million ($.08 per Depositary Unit) resulting from a
special allocation to the General Partner relating to the gross gain on the
sale of assets. (See Note 1 to the financial statements.)
After reduction of $0.9 million ($.09 per Depositary Unit) resulting from a
special allocation to the General Partner relating to the gross gain on the
sale of assets. (See Note 1 to the financial statements.)
After reduction of $1.2 million ($0.12 per Depositary Unit) resulting from
a special allocation to the General Partner relating to the gross gain on
the sale of assets. (See Note 1 to the financial statements.)
After reduction of $3.3 million ($0.33 per Depositary Unit) resulting from
a special allocation to the General Partner relating to the gross gain on
the sale of assets. (See Note 1 to the financial statements.)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
Management's Discussion and Analysis of Financial Condition and Results of
Operations relates to the Financial Statements of PLM Equipment Growth Fund III
(the Partnership). The following discussion and analysis of operations focuses
on the performance of the Partnership's equipment in various sectors of the
transportation industry and its effect on the Partnership's overall financial
condition.
The analysis is organized in the following manner:
- - Results of Operations - Year Over Year Summary and Factors Affecting
Performance
- - Financial Condition - Capital Resources, Liquidity, and Distributions
- - Outlook for the Future
- - Results of Operations - Year to Year Detail Comparison
(A) Results of Operations
(1) Year Over Year Summary
The Partnership's net operating contribution before depreciation,
amortization, gain/loss on sales, and loss on revaluation declined approximately
15% from 1994 to 1995, primarily due to the duration between the sale of
equipment and the eventual deployment of the sales proceeds in other assets, the
off-lease status of certain equipment throughout 1995, and the reductions in
lease rates for certain equipment re-leased during the year. These reductions
were partially offset by lower operating expenses from the mobile offshore
drilling unit and the deployment of proceeds from the sale of underperforming
assets. While lease turnover occurred in the Partnership's rail portfolio, the
net effect of such re-leases on Partnership performance was relatively small. In
addition, performance increases in the Partnership's trailer portfolio were due
mainly to the delivery of units into service in late 1994 and 1995. Indirect
operating expense increased due to greater reserves required with respect to
potential bad debts offset by lower management fees as a result of lower revenue
production.
(2) Factors Affecting Performance
(a) Re-leasing Activity and Repricing Exposure to Current Economic Conditions
The exposure of the Partnership's equipment portfolio to repricing risk
occurs whenever the leases for the equipment expire or are otherwise terminated
and the equipment must be remarketed. Factors influencing the current market
rate for transportation equipment include supply and demand for similar or
comparable types or kinds of transport capacity, desirability of the equipment
in the lease market, market conditions for the particular industry segment in
which the equipment is to be leased, overall market conditions, regulations of
many kinds concerning the use of the equipment, and others. The Partnership
experienced repricing exposure in 1995 primarily in its marine vessel, rig, and
marine container portfolios.
(i) Mobile Offshore Drilling Unit (Rig): In the beginning of 1994, the
Partnership's rig was moved from the Indian Ocean to the Gulf of Mexico. The
primary lease term expired in February 1995 with options to extend the lease at
the existing lease rates for 4 six-month periods. Demand requirements for
natural gas remained constant during 1995 causing the lessee to exercise its
option to extend the lease in February and again in August. As a result, the rig
did not experience any adverse effects from the repricing exposure at the end of
the option periods. For a more thorough discussion of market conditions and
those factors impacting rates for rigs, see the section in "Demand" on Mobile
Offshore Drilling Units (Rigs).
(ii)Marine Vessels: One of the Partnership's marine vessels operated in the
"spot" or "voyage charter" market during the first quarter of 1995. Spot or
voyage charters are usually of short duration and reflect the short-term demand
and pricing trends in the marine vessel market. The General Partner concluded
that the repricing exposure in this market outweighed the market benefits. As a
result, the vessel was leased on a bareboat charter that is being accounted for
as a "Sales-Type Lease". The lease has a four-year duration without the exposure
of rate fluctuations and operating cost. For a more thorough discussion of
market conditions and those factors impacting rates for marine vessels, see the
section in "Demand" on marine vessels.
(iii) Marine Containers: The majority of the Partnership's marine
container portfolio is operated in utilization-based leasing pools and as such
is highly exposed to repricing activity. Overall, marine container revenue in
1995 declined 17% from 1994 levels (approximately $2.3 million in 1994;
approximately $1.9 million in 1995). The change is due mainly to the reduction
in marine containers in service, as approximately 23% of the Partnership's
marine container fleet was liquidated or disposed of during the year. This
reduction is primarily associated with the increasing age of the fleet. For a
more thorough discussion of market conditions and those factors impacting rates
for marine containers, see the section in "Demand" on marine containers.
(iv)Other Equipment: While market conditions and other factors may have had
some impact on lease rates in markets in which the Partnership owns the
remainder of its equipment portfolio, the majority of this equipment was
unaffected as their leases did not expire in 1995. See "Demand" for a discussion
of conditions in these equipment areas.
(b) Reinvestment of Cash Flow and Surplus Funds
During the first seven years of operations which ends December 31, 1996, the
Partnership intends to increase its equipment portfolio by investing surplus
cash available in additional equipment after fulfilling operating requirements
and payments of distributions to the partners. Subsequent to the end of the
reinvestment period, the Partnership will continue to operate for another two
years, and then begin an orderly liquidation over an anticipated two-year
period. The operating lease income generated by, and proceeds from sales of,
this equipment, are intended to enhance financial returns to the partners.
Nonoperating funds for reinvestment are generated from the sale of
equipment prior to the Partnership's planned liquidation phase, the receipt of
funds realized from the payment of stipulated loss values on equipment lost or
disposed of during the time it is subject to lease agreements, or the exercise
of purchase options written into certain lease agreements. Equipment sales
generally result from the determination by the General Partner that either
revenues from continued ownership of certain equipment will not meet Partnership
performance goals, or market conditions, market values, and other considerations
indicate it is the appropriate time to sell certain equipment.
(c) Reinvestment Risk
Reinvestment risk occurs when 1) the Partnership cannot generate sufficient
surplus cash after fulfillment of operating obligations and distributions to
reinvest in additional equipment during the investment phase of the Partnership
operations; 2) equipment is sold or liquidated for less than threshold amounts;
3) proceeds from sales, losses, or surplus cash available for reinvestment
cannot be reinvested at threshold lease rates; or 4) proceeds from sales,
losses, or surplus cash available for reinvestment cannot be deployed in a
timely manner.
For the year ended December 31, 1995, the Partnership generated sufficient
funds to meet its operating obligations including interest expense. Cash
distributions of $16.7 million included both funds generated from current period
operations and cash available but not distributed in prior periods.
During the year, the Partnership received proceeds from the disposal of 462
marine containers and proceeds from the sale of 204 railcars and locomotives
totaling approximately $3.4 million. The Partnership reinvested approximately
$11.4 million: $1.7 million in 30 tank cars and capital repairs to pressure and
non-pressure tank cars; $5.2 million to fund the purchase of a partial interest
in two trusts, comprised of 3 commercial aircraft, 2 aircraft engines, and a
package of aircraft rotables; and $4.5 million for the purchase of 1 commercial
aircraft. The sales proceeds of assets sold in the fourth quarter of 1994 were
not deployed into revenue-producing assets until the end of the third quarter of
1995 when suitable assets for the Partnership were identified.
(d) Equipment Valuation
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" (SFAS 121). This standard is effective for years
beginning after December 15, 1995. The Partnership adopted SFAS 121 during 1995,
the effect of which was not material as the method previously employed by the
Partnership was consistent with SFAS 121. In accordance with SFAS 121, the
General Partner reviews the carrying value of its equipment portfolio at least
annually in relation to expected future market conditions for the purpose of
assessing the recoverability of the recorded amounts. If projected future lease
revenue plus residual values are less than the carrying value of the equipment,
a loss on revaluation is recorded. No adjustments to reflect impairment of
individual equipment carrying values were required for the year ended December
31, 1995.
As of December 31, 1995, the General Partner estimated the current fair
market value of the Partnership's equipment portfolio to be approximately $110.5
million.
(B) 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 and to make cash distributions to the Limited Partners.
During 1994, the Partnership had two loans outstanding totaling $40.8
million. One loan was for $5.8 million, with interest at 11% due in September
1996. The other loan was for $35 million, with interest at 1% over the London
Inter Bank Offering Rate (LIBOR), and due in twelve quarterly payments of $2.9
million starting December 31, 1994. To achieve the maximum return to the
Partnership the General Partner refinanced this debt with a maturity that would
more closely coincide with the liquidation phase of the Partnership. In December
1994, the Partnership completed the refinancing with a new loan of $41 million,
with interest at 1.5% over LIBOR, and due in eleven quarterly payments of $3.7
million starting December 31, 1997. To secure this loan the Partnership paid a
placement fee of 339,000 of the loan balance to the lender.
The Partnership is traded on the American Stock Exchange under the symbol
GFZ. For the past three years the Partnership has engaged in a plan to
repurchase up to 250,000 Depositary Units. At the end of 1995 the Partnership
had purchased a total of 100,353 units for $0.8 million, 34,453 of these units
were purchased in 1994,1993, and 1992 at a cost of $0.4 million.
The General Partner has entered into a joint $25 million credit facility
(the Committed Bridge Facility) on behalf of the Partnership, PLM Equipment
Growth Fund II, PLM Equipment Growth Fund IV, PLM Equipment Growth Fund V, PLM
Equipment Growth Fund VI, and Professional Lease Management Income Fund I (Fund
I), all affiliated investment programs, and TEC Acquisub, Inc. (TECAI), an
indirect wholly-owned subsidiary of the General Partner, 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 the
Partnership or Fund I, plus (ii) 50% of unrestricted cash held by the borrower.
The Committed Bridge Facility became available on December 20, 1993, and became
available to the Company on May 8, 1995, and was amended and restated on
September 27, 1995, to expire on September 30, 1996. The Committed Bridge
Facility also provides for a $5 million Letter of Credit Facility for the
eligible borrowers. Outstanding borrowings by Fund I, TECAI, or PLM Equipment
Growth Funds II 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 September 30, 1996. The
Committed Bridge Facility prohibits the General Partner from incurring any
additional indebtedness. Interest accrues at either the prime rate or adjusted
LIBOR plus 2.5% at the borrower's option and is set at the time of an advance of
funds. As of December 31, 1995, neither the Partnership, any of the other
programs, nor TECAI had any outstanding borrowings.
(C) Outlook for the Future
Several factors may affect the Partnership's operating performance in 1995 and
beyond, including changes in the markets for the Partnership's equipment and
changes in the regulatory environment in which that equipment operates.
(1) Repricing and Reinvestment Risk
Portions of the Partnership's marine container, rail, marine vessel, and
trailer portfolios will be remarketed in 1996 as existing leases expire,
exposing the Partnership to considerable repricing risk/opportunity.
Additionally, the General Partner may select to sell, certain underperforming
equipment, or equipment whose continued operation may become prohibitively
expensive. In either case, the General Partner intends to re-lease or sell
equipment at prevailing market rates; however, the General Partner cannot
predict these future rates with any certainty at this time and cannot accurately
assess the effect of such activity on future Partnership performance.
(2) Impact of Government Regulations on Future Operations
The General Partner operates the Partnership's equipment in accordance with
current applicable regulations (see Item 1, Section E, Government Regulations).
However, the continuing implementation of new or modified regulations by some of
the authorities mentioned previously, or others, may adversely affect the
Partnership's ability to continue to own or operate equipment in its portfolio.
Additionally, regulatory systems vary from country to country, which may
increase the burden to the Partnership of meeting regulatory compliance for the
same equipment operated between countries. Currently, the General Partner has
observed rising insurance costs to operate certain vessels into U.S. ports
resulting from implementation of the U.S. Oil Pollution Act of 1990. Ongoing
changes in the regulatory environment, both in the U.S. and internationally,
cannot be predicted with any accuracy, and preclude the General Partner from
determining the impact of such changes on Partnership operations, purchases, or
sale of equipment.
(3) Additional Capital Resources and Distribution Levels
The Partnership's initial contributed capital was comprised of proceeds from its
initial offering, supplemented later by permanent debt in the amount of $41
million. The General Partner has not planned any expenditures, nor is it aware
of any contingencies that would cause it to require any additional capital other
than that mentioned above.
Pursuant to the Limited Partnership Agreement, the Partnership will cease
to reinvest in additional equipment beginning in its seventh year of operations
. The General Partner intends to continue its strategy of selectively
redeploying equipment to achieve competitive returns. By the end of the
reinvestment period, the General Partner intends to have assembled an equipment
portfolio capable of achieving a level of operating cash flow for the remaining
life of the Partnership sufficient to meet its obligations and to sustain a
predictable level of distributions to the partners.
The General Partner believes the current level of distributions to the
partners cannot be maintained throughout 1996 using cash from operations,
reserves, and proceeds from sales or dispositions. As of the first quarter of
1996, the cash distribution rate has been reduced to more closely reflect
current and expected net cash flows from operations. Continued weak market
conditions in certain equipment sectors and equipment sales have reduced overall
lease revenues in the Partnership to the point where reductions in distribution
levels are now necessary. In addition, with the onset of the equipment
liquidation phase of the Partnership in 1998, 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.
Although distribution levels will be reduced, significant asset sales may result
in potential special distributions to Unitholders.
(D) Results of Operations - Year to Year Detail Comparison
Comparison of the Partnership's Operating Results for the Years Ended
December 31, 1995 and 1994
(A) Revenues
Total revenues for the years ended December 31, 1995, and 1994, were $28.1
million and $40.2 million, respectively. The decrease in 1995 revenues was
attributable primarily to decreases in lease revenue partially offset by higher
interest earned in 1995 compared to 1994. The Partnership's ability to acquire
or liquidate assets, secure leases, and re-lease those assets whose leases
expire during the duration of the Partnership is subject to many factors, and
the Partnership's performance in 1995 is not necessarily indicative of future
periods.
(1) Lease revenue decreased to $23.4 million in 1995 from $36.2 million in
1994. The decline was due to the following (in thousands):
For the year ended December 31,
1995 1994
------------------------------
Marine vessels $ 4,619 $ 15,210
Rail equipment 7,832 7,990
Aircraft 5,799 7,504
Trailers and tractors 1,944 1,502
Mobile offshore drilling unit 1,299 1,727
Marine containers 1,875 2,292
==============================
$ 23,368 $ 36,225
==============================
(a) Marine vessel revenue decreased by $10.6 million due primarily to the
sale of one vessel in the first quarter of 1995 and two vessels in the fourth
quarter of 1994;
(b) Aircraft revenue decreased by $1.7 million due to the off-lease status
of two aircraft engines in 1995 and the sale of two aircraft during 1994,
partially offset by the revenues earned on aircraft and aircraft spare parts
acquired in 1995;
(c) Marine container revenue decreased by $0.4 million resulting from the
disposal of 462 marine containers during 1995;
(d) Decline in mobile offshore drilling unit revenues of $0.4 million due
to lower daily lease rates when compared to the same period in 1994;
(e) Rail revenue decreased by $0.2 million primarily due to lower re-lease
rates on a fleet of 297 gondolas and the sale of five locomotives and 199
coalcars during 1995;
(f) The revenue decrease was partially offset by an increase in trailer
revenues due to the acquisition of 164 trailers in 1994 which were placed in the
short-term intermodal trailer leasing operation and earned approximately $0.4
million in 1995.
(2) Interest and other income increased by $0.6 million primarily due to an
insurance recovery on one of the Partnership vessels related to an insurance
claim from 1992 and higher interest income earned on 1995 cash balances versus
1994 balances.
(3) Net gain on disposition of equipment of $2.9 million was realized on the
sale of 204 railcars and locomotives, 1 marine vessel, and the disposal of 462
marine containers. These assets had an aggregate net book value of $5.5 million
and were sold or liquidated for proceeds of $8.4 million which included proceeds
of $5 million from a marine vessel related to the sales-type lease. Net gain on
disposition of equipment totaled $2.9 million in 1994 and was realized on the
sale or liquidation of 33 railcars, 2 aircraft, 57 trailers, 811 marine
containers, and 2 marine vessels. These assets had an aggregate net book value
of $13.7 million and were sold or liquidated for proceeds of $16.7 million.
(B) Expenses
The Partnership's total expenses for the years ended December 31, 1995, and
1994, were $25.3 million and $40.0 million, respectively. The decrease was
primarily attributable to decreases in depreciation expense, repairs and
maintenance expense, and marine equipment operating expenses.
(1) Direct operating expenses (defined as repairs and maintenance, insurance,
and marine equipment operating expenses, and repositioning expense) decreased to
$5.6 million in 1995 from $16.0 million in 1994. This change resulted from:
(a) A decrease of $2.0 million in repairs and maintenance expenses from
1994 levels due to the sale of two marine vessels during 1994, and the sale of
one vessel in the first quarter of 1995, coupled with a fleet of coal cars
converting to a net lease, where the lessee pays for the repairs, during 1994;
(b) A decrease of $6.9 million in marine equipment operating expenses due
to the sale of two vessels in the fourth quarter of 1994 and the sale of one
vessel in the first quarter of 1995;
(c) A decrease in insurance expense of $0.7 million relating to the sale of
two marine vessels in 1994 and one vessel in the first quarter of 1995, offset
partially by the acquisition of one aircraft during 1995.
(2) Indirect operating expenses (defined as depreciation and amortization
expense, management fees, interest expense, and general and administrative
expenses) decreased to $19.7 million in 1995 from $22.9 million in 1994.
This change resulted primarily from:
(a) A decrease in depreciation expense of $3.6 million from 1994 levels
reflecting the Partnership's double-declining balance depreciation method and
the sale or disposition of $22.0 million in assets during 1995, offset partially
by the acquisition of $11.4 million in equipment;
(b) A decrease of $0.7 million in management fee expense reflecting lower
lease rates in 1995;
(c) An increase of 0.5 million in interest expense reflecting higher
interest rates in 1995;
(d) a decrease of $0.5 million in general and administrative expenses from
1994 levels primarily reflecting less professional services required by the
Partnership relating to leasing or re-leasing equipment during 1995.
(3) Loss on revaluation of equipment in 1994 was the result of the write-downs
on 5 locomotives, 77 marine containers, and 2 aircraft engines to their
estimated net realizable values. There were no losses on revaluation of
equipment required in 1995.
(C) Net Income
The Partnership's net income increased to $2.7 million in 1995, from a net
income of $0.3 million in 1994. 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 and the
Partnership's performance in 1995 is not necessarily indicative of future
periods. For the year ended December 31, 1995, the Partnership distributed $15.9
million to the Limited Partners, or $1.60 per Depositary Unit.
Comparison of the Partnership's Operating Results for the Years Ended
December 31, 1994 and 1993
(A) Revenues
Total revenues for the years ended December 31, 1994, and 1993, were $40.2
million and $42.1 million, respectively. The decrease in 1994 revenues was
attributable primarily to decreases in lease revenue partially offset by a
larger gain on disposition of equipment in 1994 compared to 1993. The
Partnership's ability to acquire or liquidate assets, secure leases, and
re-lease those assets whose leases expire during the duration of the Partnership
is subject to many factors and the Partnership's performance in 1994 is not
necessarily indicative of future periods.
(1) Lease revenue decreased to $36.2 million in 1994 from $39.5 million in
1993. The decline was due to the following (in thousands):
For the year ended December 31,
1994 1993
------------------------------
Marine vessels $ 15,210 $ 16,996
Rail equipment 7,990 8,770
Aircraft 7,504 8,361
Trailers and tractors 1,502 670
Mobile offshore drilling unit 1,727 1,725
Marine containers 2,292 3,010
==============================
$ 36,225 $ 39,532
==============================
(a) Marine vessel revenue decreased by $1.8 million due primarily to the
sale of one vessel in September 1993 and two vessels in the fourth quarter of
1994, offset partially by the acquisition of a 56% interest in one vessel in
December 1993, and one vessel earning higher daily rates while on a voyage
charter. A voyage charter is a short-term lease lasting the duration of a
specific voyage, typically 30-45 days, wherein the charter receives revenues
associated with the direct movement of cargo;
(b) Aircraft revenue decreased by $0.9 million due to the sale of two
aircraft in 1994, the lower re-lease rates on another aircraft and one aircraft
engine and the off-lease status of one of the aircraft engines;
(c) Rail revenue decreased by $0.8 million primarily due to a fleet of 120
coal cars converting from full service to net leases. Full service leases earn
higher revenues than net leases because repair and maintenance expenses are the
responsibility of the lessor and not the lessee. Additional revenue decreases
were due to a Canadian dollar exchange rate difference on tank car revenue and
the sale of 33 railcars during 1994;
(d) Marine container revenue decreased by $0.7 million resulting from a
reduction in utilization-based revenue and the disposal of 811 marine containers
during 1994;
(e) The revenue decrease was partially offset by an increase in trailer
revenues due to the acquisition of trailers in 1993 and the fourth quarter of
1994.
(2) Interest and other income increased by $0.2 million primarily due to an
insurance recovery on one of the Partnership vessels related to an insurance
claim from 1992 and higher cash balances during 1994.
(3) Net gain on disposition of equipment of $2.9 million was realized on the
sale of 33 railcars, 2 aircraft, 57 trailers, 2 marine vessels and the disposal
of 811 marine containers. These assets had an aggregate net book value of $13.7
million and were sold or liquidated for proceeds of $16.7 million. Net gain on
disposition of equipment totaled $1.7 million in 1993 realized on the sale or
liquidation of 184 railcars, 5 locomotives, 798 marine containers, and one
marine vessel. These assets had an aggregate net book value of $9.1 million and
were sold or liquidated for proceeds of $10.8 million.
(B) Expenses
The Partnership's total expenses for the years ended December 31, 1994 and 1993,
were $40.0 million and $42.4 million, respectively. The decrease was primarily
attributable to decreases in depreciation expense, repairs and maintenance
expense, and insurance expense.
(1) Direct operating expenses (defined as repairs and maintenance, insurance,
marine equipment operating expenses, and repositioning expense) decreased to
$16.0 million in 1994 from $17.3 million in 1993. This change resulted from:
(a) A decrease of $0.9 million in repairs and maintenance expenses from
1993 levels due to the sale of two marine vessels during 1994, and the sale of
one vessel in September 1993, coupled with a fleet of coal cars converting to a
net lease during 1994, offset partially by upgrades required to operate the rig
in the Gulf of Mexico;
(b) A decrease in insurance expense of $1.1 million relating to the sale of
two marine vessels in 1994 and one vessel in September 1993, offset partially by
the acquisition of one vessel in December 1993;
(c) A decrease of $0.1 million in marine equipment operating expenses due
to the sale of two vessels in the fourth quarter of 1994, the sale of one vessel
in September 1993, partially offset by the acquisition of one vessel in December
1993 and two of the Partnership's marine vessels operating on short-term voyage
charters. Voyage charters are short-term leases lasting the duration of one
voyage, typically 30-45 days. Under a voyage charter lease the Partnership pays
for certain costs, such as bunkers and port costs, that were formerly borne by
the lessee under previous Partnership charter agreements.
(2) Indirect operating expenses (defined as depreciation and amortization
expense, management fees, interest expense, and general and administrative
expenses) decreased to $22.9 million in 1994 from $25.0 million in 1993.
This change resulted primarily from:
(a) A decrease in depreciation expense of $2.3 million from 1993 levels
reflecting the Partnership's double-declining depreciation method and the sale
or disposition of $41.0 million in assets during 1994, offset partially by the
acquisition of $4.4 million in equipment and capitalized repairs;
(b) A decrease of $0.2 million in management fee expense due to lower lease
rates and utilization rates, coupled with the sale of two marine vessels in the
fourth quarter;
(c) An increase of $0.1 million in general and administrative expenses from
1993 levels primarily reflecting higher professional services required by the
Partnership relating to leasing or re-leasing equipment during 1994.
(3) Loss on revaluation of equipment increased by $1.1 million reflecting
write-downs on 5 locomotives, 77 marine containers and 2 aircraft engines to
their estimated net realizable values. In 1993, the Partnership reduced the
carrying value of 5 locomotives to their then estimated net realizable values.
(C) Net Income (Loss)
The Partnership's net income increased to $0.3 million in 1994, from a net
loss of $0.2 million in 1993. 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 and the
Partnership's performance in 1994 is not necessarily indicative of future
periods. For the year ended December 31, 1994, the Partnership distributed $16.0
million to the Limited Partners, or $1.60 per Depositary Unit.
Geographic Information
The Partnership operates its equipment in international markets. As such, the
Partnership is exposed to a variety of currency, political, credit, and economic
risks. Currency risks are at a minimum because all invoicing, with the exception
of a small number of railcars operating in Canada, is conducted in U.S. dollars.
Political risks are minimized generally through the avoidance of operations in
countries that do not have a stable judicial system and established commercial
business laws. Credit support strategies for lessees range from letters of
credit supported by U.S. banks to cash deposits. Although these credit support
mechanisms generally allow the Partnership to maintain its lease yield, there
are risks associated with slow-to-respond judicial systems when legal remedies
are required to secure payment or repossess equipment. Economic risks are
inherent in all international markets and the General Partner strives to
minimize this risk with market analysis prior to committing equipment to a
particular geographic area. Refer to the notes to the Financial statements for
information on the revenues, income, and assets in various geographic regions.
Inflation
There was no significant impact on the Partnership's operations as a result of
inflation during 1995, 1994, or 1993.
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. In 1995, 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 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 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements for the Partnership are listed in the Index to
Financial Statements and Financial Statement Schedules included in Item 14 of
this Annual Report. Table 4, below, is a summary of the results of operations on
a quarterly basis for the Partnership for the years ended December 31, 1995 and
1994:
TABLE 4
Three months ended:
(thousands of dollars, except unit amounts)
1995 March 31 June 30 Sept. 30 Dec. 31
--------------------------------------------------------------------------------------------------------------------
Total revenues $ 8,522 $ 5,724 $ 7,055 $ 6,754
Net (loss) gain on disposition
of equipment $ 2,055 $ (41) $ 874 $ 48
Net income (loss) $ 1,659 $ 84 $ 1,143 $ (180)
Net income (loss) per Depositary Unit $ 0.15 $ (0.01) $ 0.09 $ (0.04)
Cash distributions $ 4,196 $ 4,188 $ 4,176 $ 4,177
Cash distributions per Depositary Unit $ 0.40 $ 0.40 $ 0.40 $ 0.40
Number of Depositary Units at end
of quarter 9,946,773 9,918,826 9,918,773 9,899,573
Includes a gain from the sale of one marine vessel which had an aggregate
net book value of $3.7 million and sold for proceeds of $5.0 million and
sale of 199 railcars and 5 locomotives which had an aggregate net book
value of $1.1 million and sold for proceeds of $2.5 million.
TABLE 4
Three months ended:
(thousands of dollars, except unit amounts)
1994 March 31 June 30 Sept. 30 Dec. 31
--------------------------------------------------------------------------------------------------------------------
Total revenues $ 9,413 $ 9,681 $ 9,797 $ 11,356
Net (loss) gain on disposition
of equipment $ (18) $ 178 $ (56) $ 2,759
Loss on revaluation of equipment $ -- $ -- $ (334) $ (748)
Net income (loss) $ 821 $ (448) $ (38) $ (83)
Net income (loss) per Depositary Unit $ 0.06 $ (0.07) $ (0.01) $ (0.03)
Cash distributions $ 4,200 $ 4,203 $ 4,207 $ 4,201
Cash distributions per Depositary Unit $ .40 $ .40 $ .40 $ .40
Number of Depositary Units at end
of quarter 9,981,126 9,981,126 9,981,126 9,965,473
Includes a gain from the sale of two marine vessels which had an aggregate
net book value of $8.3 million and sold for proceeds of $12.1 million,
partially offset by a loss on sale of one aircraft which had a net book
value of $3.3 million and was sold for proceeds of $2.2 million.
During the quarter ended December 31, 1994, the Partnership reduced the
carrying value of two aircraft engines by $0.7 million to their estimated
net realizable values.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
(This space left intentionally blank)
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
As of the date of this Annual Report, the directors and executive
officers of PLM International (and key executive officers of its subsidiaries)
are as follows:
Name Age Position
- -------------------------------------- ------------------- -------------------------------------------------------
J. Alec Merriam 60 Director, Chairman of the Board, PLM International,
Inc.; Director, PLM Financial Services, Inc.
Allen V. Hirsch 42 Director, Vice Chairman of the Board, Executive Vice
President of PLM International, Inc.; Director and
President, PLM Financial Services, Inc.; President,
PLM Securities Corp., and PLM Transportation
Equipment Corporation.
Walter E. Hoadley 79 Director, PLM International, Inc.
Robert L. Pagel 59 Director, Chairman of the Executive Committee, PLM
International, Inc.; Director, PLM Financial
Services, Inc.
Harold R. Somerset 61 Director, PLM International, Inc.
Robert N. Tidball 57 Director, President and Chief Executive Officer, PLM
International, Inc.
J. Michael Allgood 47 Vice President and Chief Financial Officer, PLM
International, Inc. and PLM Financial Services, Inc.
Stephen M. Bess 49 President, PLM Investment Management, Inc.; Vice
President, PLM Financial Services, Inc.
David J. Davis 39 Vice President and Corporate Controller, PLM
International and PLM Financial Services, Inc.
Frank Diodati 41 President, PLM Railcar Management Services Canada
Limited.
Douglas P. Goodrich 49 Senior Vice President, PLM International,
PLM Transportation Equipment Corporation;
President PLM Railcar Management Services, Inc.
Steven O. Layne 41 Vice President, PLM Transportation Equipment
Corporation.
Stephen Peary 47 Senior Vice President, General Counsel and Secretary,
PLM International, Inc. and PLM Financial Services, Inc.;
Vice President, PLM Investment Management, Inc., PLM Transportation
Equipment Corporation, PLM Securities, Corp.
Thomas L. Wilmore 53 Vice President, PLM Transportation Equipment
Corporation; Vice President, PLM Railcar Management
Services, Inc.
J. Alec Merriam was appointed Chairman of the Board of Directors of PLM
International in September 1990, having served as a director since February
1988. In October 1988 he became a member of the Executive Committee of the Board
of Directors of PLM International. From 1972 to 1988 Mr. Merriam was Executive
Vice President and Chief Financial Officer of Crowley Maritime Corporation, a
San Francisco area-based company engaged in maritime shipping and transportation
services. Previously, he was Chairman of the Board and Treasurer of LOA
Corporation of Omaha, Nebraska and served in various financial positions with
Northern Natural Gas Company, also of Omaha.
Allen V. Hirsch became Vice Chairman of the Board and a Director of PLM
International in April 1989. He is an Executive Vice President of PLM
International and President of PLM Securities Corp. Mr. Hirsch became the
President of PLM Financial Services, Inc. in January 1986 and President of PLM
Investment Management, Inc. and PLM Transportation Equipment Corporation in
August 1985, having served as a Vice President of PLM Financial Services, Inc.
and Senior Vice President of PLM Transportation Equipment Corporation beginning
in August 1984, and as a Vice President of PLM Transportation Equipment
Corporation beginning in July 1982 and of PLM Securities Corp. from July 1982 to
October 1, 1987. He joined PLM, Inc. in July 1981, as Assistant to the Chairman.
Prior to joining PLM, Inc., Mr. Hirsch was a Research Associate at the Harvard
Business School. From January 1977 through September 1978, Mr. Hirsch was a
consultant with the Booz, Allen and Hamilton Transportation Consulting Division,
leaving that employment to obtain his master's degree in business
administration.
Dr. Hoadley joined PLM International's Board of Directors and its Executive
Committee in September, 1989. He served as a Director of PLM, Inc. from November
1982 to June 1984 and PLM Companies, Inc. from October 1985 to February 1988.
Dr. Hoadley has been a Senior Research Fellow at the Hoover Institute since
1981. He was Executive Vice President and Chief Economist for the Bank of
America from 1968 to 1981 and Chairman of the Federal Reserve Bank of
Philadelphia from 1962 to 1966. Dr. Hoadley had served as a Director of
Transcisco Industries, Inc. from February 1988 through August 1995.
Robert L. Pagel was appointed Chairman of the Executive Committee of the
Board of Directors of PLM International in September 1990, having served as a
director since February 1988. In October 1988 he became a member of the
Executive Committee of the Board of Directors of PLM International. From June
1990 to April 1991 Mr. Pagel was President and Co-Chief Executive Officer of The
Diana Corporation, a holding company traded on the New York Stock Exchange. He
is the former President and Chief Executive Officer of FanFair Corporation which
specializes in sports fans' gift shops. He previously served as President and
Chief Executive Officer of Super Sky International, Inc., a publicly traded
company, located in Mequon, Wisconsin, engaged in the manufacture of skylight
systems. He was formerly Chairman and Chief Executive Officer of Blunt, Ellis &
Loewi, Inc., a Milwaukee-based investment firm. Mr. Pagel retired from Blunt,
Ellis & Loewi in 1985 after a career spanning 20 years in all phases of the
brokerage and financial industries. Mr. Pagel has also served on the Board of
Governors of the Midwest Stock Exchange.
Harold R. Somerset was elected to the Board of Directors of PLM
International in July 1994. From February 1988 to December 1993, Mr. Somerset
was President and Chief Executive Officer of California & Hawaiian Sugar
Corporation (C&H), a recently-acquired subsidiary of Alexander & Baldwin, Inc.
Mr. Somerset joined C&H in 1984 as Executive Vice President and Chief Operating
Officer, having served on its Board of Directors since 1978, a position in which
he continues to serve. Between 1972 and 1984, Mr. Somerset served in various
capacities with Alexander & Baldwin, Inc., a publicly-held land and agriculture
company headquartered in Honolulu, Hawaii, including Executive Vice President -
Agricultures, Vice President, General Counsel and Secretary. In addition to a
law degree from Harvard Law School, Mr. Somerset also holds degrees in civil
engineering from the Rensselaer Polytechnic Institute and in marine engineering
from the U.S. Naval Academy. Mr. Somerset also serves on the Boards of Directors
for various other companies and organizations, including Longs Drug Stores,
Inc., a publicly-held company headquartered in Maryland.
Robert N. Tidball was appointed President and Chief Executive Officer of
PLM International in March 1989. At the time of his appointment, he was
Executive Vice President of PLM International. Mr. Tidball became a director of
PLM International in April, 1989 and a member of the Executive Committee of the
Board of Directors of PLM International in September 1990. Mr. Tidball was
elected President of PLM Railcar Management Services, Inc. in January 1986. Mr.
Tidball was Executive Vice President of Hunter Keith, Inc., a Minneapolis-based
investment banking firm, from March 1984 to January 1986. Prior to Hunter Keith,
Inc., he was Vice President, a General Manager and a Director of North American
Car Corporation, and a Director of the American Railcar Institute and the
Railway Supply Association.
J. Michael Allgood was appointed Vice President and Chief Financial Officer
of PLM International in October 1992. Between July 1991 and October 1992, Mr.
Allgood was a consultant to various private and public sector companies and
institutions specializing in financial operational systems development. In
October 1987, Mr. Allgood co-founded Electra Aviation Limited and its holding
company, Aviation Holdings Plc of London where he served as Chief Financial
Officer until July 1991. Between June 1981 and October 1987, Mr. Allgood served
as a First Vice President with American Express Bank, Ltd. In February 1978, Mr.
Allgood founded and until June 1981, served as a director of Trade Projects
International/Philadelphia Overseas Finance Company, a joint venture with
Philadelphia National Bank. From March 1975 to February 1978, Mr. Allgood served
in various capacities with Citibank, N.A.
Stephen M. Bess was appointed President of PLM Investment Management, Inc.
in August 1989, having served as Senior Vice President of PLM Investment
Management, Inc. beginning in February 1984 and as Corporate Controller of PLM
Financial Services, Inc. beginning in October 1983. Mr. Bess served as Corporate
Controller of PLM, Inc., beginning in December 1982. Mr. Bess was Vice
President-Controller of Trans Ocean Leasing Corporation, a container leasing
company, from November 1978 to November 1982, and Group Finance Manager with the
Field Operations Group of Memorex Corp., a manufacturer of computer peripheral
equipment, from October 1975 to November 1978.
David J. Davis was appointed Vice President and Controller of PLM
International in January 1994. From March 1993 through January 1994, Mr. Davis
was engaged as a consultant for various firms, including PLM. Prior to that Mr.
Davis was Chief Financial Officer of LB Credit Corporation in San Francisco from
July 1991 to March 1993. From April 1989 to May 1991, Mr. Davis was Vice
President and Controller for ITEL Containers International Corporation which was
located in San Francisco. Between May 1978 and April 1989, Mr. Davis held
various positions with Transamerica Leasing Inc., in New York, including that of
Assistant Controller for their rail leasing division.
Frank Diodati was appointed President of PLM Railcar Management Services
Canada Limited in 1986. Previously, Mr. Diodati was Manager of Marketing and
Sales for G.E. Railcar Services Canada Limited.
Douglas P. Goodrich was appointed Senior Vice President of PLM
International in March 1994. Mr. Goodrich has also served as Senior Vice
President of PLM Transportation Equipment Corporation since July 1989, and as
President of PLM Railcar Management Services, Inc. since September 1992 having
been a Senior Vice President since June 1987. Mr. Goodrich was an Executive Vice
President of G.I.C. Financial Services Corporation, a subsidiary of Guardian
Industries Corp. of Chicago, Illinois from December 1980 to September 1985.
Steven O. Layne was appointed Vice President, PLM Transportation Equipment
Corporation's Air Group in November 1992. Mr. Layne was its Vice President,
Commuter and Corporate Aircraft beginning in July 1990. Prior to joining PLM,
Mr. Layne was the Director, Commercial Marketing for Bromon Aircraft
Corporation, a joint venture of General Electric Corporation and the Government
Development Bank of Puerto Rico. Mr. Layne is a major in the United States Air
Force Reserves and senior pilot with 13 years of accumulated service.
Stephen Peary became Vice President, Secretary, and General Counsel of PLM
International in February 1988 and Senior Vice President in March 1994. Mr.
Peary was Assistant General Counsel of PLM Financial Services, Inc. from August
1987 through January 1988. Previously, Mr. Peary was engaged in the private
practice of law in San Francisco. Mr. Peary is a graduate of the University of
Illinois, Georgetown University Law Center, and Boston University (Masters of
Taxation Program).
Thomas L. Wilmore was appointed Vice President - Rail, PLM Transportation
Equipment Corporation, in March 1994 and has served as Vice President, Marketing
for PLM Railcar Management Services, Inc. since May 1988. Prior to joining PLM,
Mr. Wilmore was Assistant Vice President Regional Manager for MNC Leasing Corp.
in Towson, Maryland from February 1987 to April 1988. From July 1985 to February
1987, he was President and Co-Owner of Guardian Industries Corp., Chicago,
Illinois and between December 1980 and July 1985, Mr. Wilmore was an Executive
Vice President for its subsidiary, G.I.C. Financial Services Corporation. Mr.
Wilmore also served as Vice President of Sales for Gould Financial Services
located in Rolling Meadows, Illinois from June 1978 to December 1980.
The directors of the General Partner are elected for a one-year term or
until their successors are elected and qualified. There are no family
relationships between any director or any executive officer of the General
Partner.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no directors, officers, or employees. The Partnership has no
pension, profit-sharing, retirement, or similar benefit plan in effect as of
December 31, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
The General Partner is generally entitled to a 5% interest in the
profits and losses and distribution of the Partnership. At December 31,
1995, no investor was known by the General Partner to beneficially own
more than 5% of the Depositary Units of the Partnership.
(b) Security Ownership of Management
Neither the General Partner and its affiliates nor any officer or
director of the General Partner and its affiliates own any Units of the
Partnership as of December 31, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with Management and Others
During 1995, management fees to IMI were $1.1 million. In 1995, the
Partnership paid or accrued lease negotiation and equipment acquisition
fees of $0.5 million to PLM Transportation Equipment Corporation. The
General Partner and its affiliates were reimbursed $0.8 million for
administrative and data processing services performed on behalf of the
Partnership in 1995. The Partnership paid Transportation Equipment
Indemnity Company Ltd. (TEI), a wholly owned, Bermuda-based subsidiary
of PLM International, $0.3 million for insurance coverages during 1995
substantially all of which was paid to third party reinsurance
underwriters or placed in risk pools managed by TEI on behalf of
affiliated partnerships and PLM International which provide threshold
coverages on marine vessel loss of hire and hull and machinery damage.
All pooling arrangement funds are either paid out to cover applicable
losses or refunded pro rata by TEI.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management
None.
(d) Transactions With Promoters
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements listed in the accompanying Index to
Financial Statements are filed as part of this Annual Report.
(b) Reports on Form 8-K
None.
(c) Exhibits
4. Limited Partnership Agreement of Partnership. Incorporated
by reference to the Partnership's Registration Statement on
Form S-1 (Reg. No. 33-18104) which became effective with the
Securities and Exchange Commission on March 25, 1988.
4.1 Amendment, dated November 18, 1991, to Limited Partnership
Agreement of Partnership. Incorporated by reference to the
Partnership's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 30, 1992.
10.1 Management Agreement between Partnership and PLM Investment
Management, Inc. Incorporated by reference to the
Partnership's Registration Statement on Form S-1 (Reg. No.
33-18104) which became effective with the Securities and
Exchange Commission on March 25, 1988.
10.2 $41,000,000 Credit Agreement dated as of December 13, 1994
with First Union National Bank of North Carolina.
Incorporated by reference to the Partnership's Annual Report
on Form 10-K to the Securities and Exchange Commission dated
March 24, 1995.
10.3 Amended and Restated Warehousing Credit Agreement dated
September 27, 1995 with First Union National Bank of North
Carolina. Incorporated by reference to the Partnership's
Quarterly Report on Form 10-Q to the Securities and Exchange
Commission dated November 10, 1995.
25. Powers of Attorney.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
The Partnership has no directors or officers. The General Partner has
signed on behalf of the Partnership by duly authorized officers.
Date: March 20, 1996 PLM EQUIPMENT GROWTH FUND III
PARTNERSHIP
By: PLM Financial Services, Inc.
General Partner
By: *
------------------------
Allen V. Hirsch
President
By: /s/ David J. Davis
------------------------
David J. Davis
Vice President and
Corporate Controller
* Stephen Peary, by signing his name hereto, does sign this document on behalf
of the persons indicated above pursuant to powers of attorney duly executed by
such persons and filed with the Securities and Exchange Commission.
/s/ Stephen Peary
-----------------------
Stephen Peary
Attorney-in-Fact
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following directors of the Partnership's General
Partner on the dates indicated.
Name Capacity Date
*
- -----------------
Allen V. Hirsch Director - FSI March 20, 1996
*
- -----------------
J. Alec Merriam Director - FSI March 20, 1996
*
- -----------------
Robert L. Pagel Director - FSI March 20, 1996
* Stephen Peary, by signing his name hereto, does sign this document on behalf
of the persons indicated above pursuant to powers of attorney duly executed by
such persons and filed with the Securities and Exchange Commission.
/s/ Stephen Peary
- ----------------------
Stephen Peary
Attorney-in-Fact
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
INDEX TO FINANCIAL STATEMENTS
(Item 14(a))
Page
Report of Independent Auditors 30
Balance sheets as of December 31, 1995 and 1994 31
Statements of operations for the years ended December 31,
1995, 1994, and 1993 32
Statements of changes in partners' capital for
the years ended December 31, 1995, 1994, and
1993 33
Statements of cash flows for the years ended December 31,
1995, 1994, and 1993 34
Notes to financial statements 35-43
All other financial statement schedules have been omitted as the required
information is not pertinent to the Registrant or is not material, or because
the information required is included in the financial statements and notes
thereto.
REPORT OF INDEPENDENT AUDITORS
The Partners
PLM Equipment Growth Fund III:
We have audited the financial statements of PLM Equipment Growth Fund III as
listed in the accompanying index. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PLM Equipment Growth Fund III
as of December 31, 1995 and 1994 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.
/S/ KPMG PEAT MARWICK
SAN FRANCISCO, CALIFORNIA
March 14, 1996
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
BALANCE SHEETS
December 31,
(in thousands of dollars except per unit amounts)
ASSETS
1995 1994
-----------------------------------
Equipment held for operating leases, at cost $ 148,607 $ 173,195
Less accumulated depreciation (88,354) (98,657)
-----------------------------------
60,253 74,538
Equipment held for sale 6,902 --
-----------------------------------
Net equipment 67,155 74,538
Cash and cash equivalents 3,445 14,885
Restricted cash and marketable securities 5,660 5,353
Accounts and note receivable, net of allowance for doubtful
accounts of $569 in 1995 and $227 in 1994 2,925 3,276
Net investment in sales-type lease 4,518 --
Prepaid expenses 89 199
Deferred charges, net of accumulated amortization
of $2,319 in 1995 and $2,812 in 1994 467 528
-----------------------------------
Total assets $ 84,259 $ 98,779
===================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 1,803 $ 1,706
Due to affiliates 1,585 536
Notes payable 41,000 41,000
Prepaid deposits and reserves for repairs 9,271 10,539
Security deposits 263 247
-----------------------------------
Total liabilities 53,922 54,028
Partners' capital:
Limited Partners (9,899,573 and 9,965,473
Depositary Units at December 31, 1995 and 1994) 30,337 44,751
General Partner -- --
-----------------------------------
Total partners' capital 30,337 44,751
-----------------------------------
Total liabilities and partners' capital $ 84,259 $ 98,779
===================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31,
(in thousands of dollars except per unit amounts)
1995 1994 1993
--------------------------------------------
Revenues:
Lease revenue $ 23,368 $ 36,225 $ 39,532
Interest and other income 1,751 1,159 910
Net gain on disposition of equipment 2,936 2,863 1,707
--------------------------------------------
Total revenues 28,055 40,247 42,149
Expenses:
Depreciation and amortization 12,757 16,318 18,591
Management fees to affiliate 1,137 1,788 1,989
Repairs and maintenance 4,063 6,077 6,931
Interest expense 3,474 2,938 2,493
Insurance expense to affiliate 268 555 321
Other insurance expense 390 789 2,143
Repositioning expense (18) 733 12
Marine equipment operating expenses 902 7,835 7,885
General and administrative expenses
to affiliates 816 654 501
Other general and administrative expenses 1,560 1,226 1,432
Loss on revaluation of equipment -- 1,082 92
--------------------------------------------
Total expenses 25,349 39,995 42,390
--------------------------------------------
Net income (loss) $ 2,706 $ 252 $ (241)
============================================
Partners' share of net income (loss):
Limited Partners $ 1,869 $ (589) $ (1,082)
General Partner 837 841 841
============================================
Total $ 2,706 $ 252 $ (241)
============================================
Net income (loss) per Depositary Unit (9,899,573 Units - 1995,
9,965,473 - 1994, 9,983,626 - 1993) $ 0.19 $ (0.06) $ (0.11)
============================================
Cash distributions $ 16,737 $ 16,811 $ 16,829
============================================
Cash distribution per Depositary Unit $ 1.60 $ 1.60 $ 1.60
============================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the years ended December 31, 1995, 1994, and 1993
(in thousands)
Limited General
Partners Partner Total
------------------------------------------------
Partners' capital at December 31, 1992 $ 78,811 $ -- $ 78,811
Net income (loss) (1,082) 841 (241)
Repurchase of Units (241) -- (241)
Cash distributions (15,988) (841) (16,829)
------------------------------------------------
Partners' capital at December 31, 1993 61,500 -- 61,500
Net income (loss) (589) 841 252
Repurchase of Units (190) -- (190)
Cash distributions (15,970) (841) (16,811)
------------------------------------------------
Partners' capital at December 31, 1994 44,751 -- 44,751
Net income 1,869 837 2,706
Repurchase of Units (383) -- (383)
Cash distributions (15,900) (837) (16,737)
------------------------------------------------
Partners' capital at December 31, 1995 $ 30,337 $ -- $ 30,337
================================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31,
(thousands of dollars)
1995 1994 1993
---------------------------------------------
Operating activities:
Net income (loss) $ 2,706 $ 252 $ (241)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 12,757 16,318 18,591
Net gain on disposition of equipment (2,936) (2,863) (1,707)
Loss on revaluation of equipment -- 1,082 92
Changes in operating assets and liabilities:
Accounts and notes receivable, net 202 1,031 511
Prepaid expenses 111 13 449
Restricted cash and marketable securities (307) (272) (19)
Accounts payable and accrued expenses 43 375 (803)
Due (to) from affiliates 1,050 (324) (90)
Prepaid deposits and reserves for repairs (302) (1,892) (175)
---------------------------------------------
Cash provided by operating activities 13,324 13,720 16,608
---------------------------------------------
Investing activities:
Payments for purchase of equipment (9,961) (2,417) (15,542)
Payment of capitalized repairs (1,008) (1,564) (1,091)
Payments of acquisition fees to affiliate (447) (129) (739)
Payments received on sales-type lease 482 -- --
Purchase of restricted marketable securities -- -- (4,602)
Proceeds from disposition of equipment 3,389 16,748 10,808
Payments of lease negotiation fees to affiliate (99) (30) (164)
---------------------------------------------
Net cash provided by (used in) investing activities (7,644) 12,608 (11,330)
---------------------------------------------
Financing activities:
Increase in prepaid deposits and reserve for repairs -- -- 4,603
Payments for debt placement fees -- (339) --
Proceeds from notes payable -- 41,000 --
Principal payments on notes payable -- (40,866) --
Repurchase of Depositary Units (383) (190) (241)
Cash distributions paid to partners (16,737) (16,811) (16,829)
---------------------------------------------
Net cash used in financing activities (17,120) (17,206) (12,467)
---------------------------------------------
Net increase (decrease) in cash and cash
equivalents (11,440) 9,122 (7,189)
Cash and cash equivalents at beginning of year 14,885 5,763 12,952
---------------------------------------------
Cash and cash equivalents at end of year $ 3,445 $ 14,885 $ 5,763
=============================================
Supplemental information:
Interest paid $ 2,611 $ 2,587 $ 2,539
=============================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
1. Basis of Presentation
Organization
PLM Equipment Growth Fund III, a California limited partnership (the
Partnership), was formed on October 15, 1987. The Partnership engages
in the business of owning and leasing primarily used transportation
equipment. The Partnership offering became effective on March 25, 1988.
The Partnership commenced significant operations in September 1988.
Depositary Units evidencing Limited Partner ownership interests in the
Partnership are listed for trading on the American Stock Exchange under
the symbol "GFZ". PLM Financial Services, Inc. (FSI) is the General
Partner. FSI is a wholly-owned subsidiary of PLM International, Inc.
(PLM International).
The Partnership will terminate on December 31, 2000, unless
terminated earlier upon sale of all equipment or by certain other
events. Beginning after the Partnership's seventh year of operations ,
the General Partner will stop reinvesting excess cash, all of which,
less reasonable reserves, will be distributed to the Partners.
Beginning in the Partnership's eleventh year of operations, the General
Partner intends to begin an orderly liquidation of the Partnership's
assets.
FSI manages the affairs of the Partnership. The net income (loss)
and distributions of the Partnership are generally allocated 95% to the
Limited Partners and 5% to the General Partner (see, Net Income (Loss)
per Depositary Unit, below). The General Partner is entitled to a
subordinated incentive fee equal to 7.5% of "Surplus Distributions", as
defined in the Partnership Agreement, remaining after the Limited
Partners have received a certain minimum rate of return.
These financial statements have been prepared on the accrual basis
of accounting in accordance with generally accepted accounting
principles. This requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Operations
The equipment of the Partnership is managed, under a continuing
management agreement, by PLM Investment Management, Inc. (IMI), a
wholly-owned subsidiary of FSI. IMI receives a monthly management fee
from the Partnership for managing the equipment (see Note 2). FSI, in
conjunction with its subsidiaries, syndicates investment programs,
sells transportation equipment to investor programs and third parties,
manages pools of transportation equipment under agreements with the
investor programs, and is a General Partner of other Limited
Partnerships.
Accounting for Leases
The Partnership's leasing operations generally consist of operating
leases. Under the operating lease method of accounting, the leased
asset is recorded at cost and depreciated over its estimated useful
life. Rental payments are recorded as revenue over the lease term.
Lease origination costs are capitalized and amortized over the term of
the lease.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
1. Basis of Presentation (continued)
Translation of Foreign Currency Transactions
The Partnership is a domestic partnership, however, a limited number of
the Partnership's transactions are denominated in a foreign currency.
The Partnership's asset and liability accounts denominated in a foreign
currency were translated into U.S. dollars at the rates in effect at
the balance sheet dates, and revenue and expense items were translated
at average rates during the year. Gains or losses resulting from
foreign currency transactions are included in the results of operations
and are not material.
Depreciation and Amortization
Depreciation of equipment held for operating leases is computed on the
200% declining balance method taking a full month's depreciation in the
month of acquisition, based upon estimated useful lives of 12 years for
aircraft, marine containers, and marine vessels, and 15 years for
railcars. The depreciation method is changed to straight line when
annual depreciation expense using the straight line method exceeds that
calculated by the 200% declining balance method. Acquisition fees have
been capitalized as part of the cost of the equipment. Organization
costs are amortized over a 60 month period. Lease negotiation fees are
amortized over the initial equipment lease term. Debt placement fees
and issuance costs are amortized over the term of the loan for which
they were paid. Major expenditures which are expected to extend the
useful lives or reduce future operating expenses of equipment are
capitalized.
Transportation Equipment
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
to be Disposed Of" (SFAS 121). This standard is effective for years
beginning after December 15, 1995. The Partnership adopted SFAS 121
during 1995, the effect of which was not material as the method
previously employed by the Partnership was consistent with SFAS 121. In
accordance with SFAS 121, the General Partner reviews the carrying
value of its equipment portfolio at least annually in relation to
expected future market conditions for the purpose of assessing
recoverability of the recorded amounts. If projected future lease
revenue plus residual values are less than the carrying value of the
equipment, a loss on revaluation is recorded.
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.
Repairs and Maintenance
Maintenance costs are usually the obligation of the lessee. If they are
not covered by the lessee they are charged against operations as
incurred. To meet the maintenance obligations of certain aircraft
airframes and engines, escrow accounts are prefunded by the lessees.
Estimated costs associated with marine vessel drydockings are accrued
and charged to income ratably over the period prior to such drydocking.
The reserve accounts are included in the balance sheet as prepaid
deposits and reserve for repairs. The prefunded amounts are included in
the balance sheet as restricted cash.
Net Income (Loss) and Distributions per Depositary Unit
The net income (loss) and distributions of the Partnership are
generally allocated 95% to the Limited Partners and 5% to the General
Partner. Gross gain on disposition of equipment in each year is
specially allocated to the General Partner to the extent, if any,
necessary to cause the
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
1. Basis of Presentation (continued)
Net Income (Loss) and Distributions per Depositary Unit (continued)
capital account balance of the General Partner to be zero as of the
close of such year. No special allocation was received by the General
Partner in 1995. The General Partner received a special allocation in
the amount of $0.7 million, $0.8 million, and $0.9 million from the
gross gain on disposition of equipment for the years ended December 31,
1995, 1994, and 1993, respectively. The Limited Partners' net income
(loss) and distributions are allocated among the Limited Partners based
on the number of Depositary Units owned by each Limited Partner and on
the number of days of the year each Limited Partner is in the
Partnership.
Cash distributions are recorded when paid. Cash distributions to
limited partners of $4.0 million ($0.40 per Depositary Unit) were
declared on December 15, 1995 and paid on February 15, 1996, to the
unit holders of record as of December 31, 1995. Cash distributions to
investors in excess of net income are considered to represent a return
of capital on a Generally Accepted Accounting Principles (GAAP) basis.
In 1995, distributions of $14.0 million were deemed a return of
capital. All cash distributions to Limited Partners in 1994 and 1993,
were deemed to be a return of capital.
Cash and Cash Equivalents
The Partnership considers highly liquid investments that are readily
convertible into known amounts of cash with original maturities of
three months or less to be cash equivalents. Lessee security deposits
and required reserves held by the Partnership are considered restricted
cash.
Reclassifications
Certain amounts in the 1994 and 1993 financial statements have been
reclassified to conform with the 1995 presentation.
2. General Partner and Transactions with Affiliates
An officer of FSI contributed $100 of the Partnership's initial
capital. Under the equipment management agreement, IMI receives a
monthly fee equal to the lesser of (i) the fees which would be charged
by an independent third party for similar services for similar
equipment or (ii) the sum of (A) 5% of the Gross Lease Revenues (as
defined in the agreement) attributable to equipment which is subject to
operating leases and (B) 2% of the Gross Lease Revenues attributable to
equipment which is subject to full payout leases. Management fees of
$1.6 million and $0.45 million and were payable to IMI as of December
31, 1995, and 1994, respectively.
Additionally, the Partnership reimbursed FSI and its affiliates
$0.8 million, $0.7 million, and $0.5 million for administrative and
data processing services performed on behalf of the Partnership in
1995, 1994, and 1993, respectively.
The Partnership paid or accrued lease negotiation and equipment
acquisition fees of $0.5 million, $0.2 million, and $0.9 million to PLM
Transportation Equipment Corporation (TEC) during 1995, 1994 and 1993,
respectively.
The Partnership paid $0.3 million, $0.6 million, and $1.1 million
to Transportation Equipment Indemnity Company Ltd. (TEI) during 1995,
1994, and 1993, respectively. TEI provides marine insurance coverage
for Partnership equipment and other insurance brokerage services to the
Partnership. TEI is an affiliate of the General Partner. A substantial
portion of these amounts were paid to third party reinsurance
underwriters or placed in risk pools managed by TEI on behalf of
affiliated partnerships and PLM International which provide threshold
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
2. General Partner and Transactions with Affiliates (continued)
coverages on marine vessel loss of hire and hull and machinery damage.
All pooling management funds are either paid out to cover applicable
losses or refunded pro rata by TEI.
The net balance due to FSI and its affiliates was $1.6 million and $0.5
million at December 31, 1995 and 1994, respectively.
3. Equipment
The components of equipment at December 31, 1995 and 1994 are as
follows (in thousands):
Equipment held for operating leases: 1995 1994
--------------------------------
Rail equipment $ 35,761 $ 38,863
Marine containers 15,015 16,797
Marine vessels 22,625 39,422
Aircraft 67,582 57,863
Trailers 7,624 7,568
Mobile offshore drilling unit -- 12,682
--------------------------------
148,607 173,195
Less accumulated depreciation (88,354) (98,657)
--------------------------------
60,253 74,538
Equipment held for sale: 6,902 --
--------------------------------
Net equipment $ 67,155 $ 74,538
================================
Revenues are earned by placing the equipment under operating
leases which are billed monthly or quarterly. Some of the Partnership's
marine vessels and 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.
As of December 31, 1995, all equipment in the Partnership
portfolio was on lease, except 53 marine containers, 18 tank cars, and
2 aircraft engines. The aggregate net book value of equipment off-lease
was $3.1 million and $4.3 million at December 31, 1995 and 1994,
respectively.
One commercial aircraft is on lease to Continental Airlines Inc.
(Continental). Continental filed for protection under Chapter 11 of the
U.S. Bankruptcy code in December 1990. Unpaid past due rent payments
totaling $1.4 million were converted into two promissory notes by the
Bankruptcy Court with interest accruing at the rate of 8.64% and 12%
per annum over 42 and 48 equal monthly installments. As of December 31,
1995, $324,000 was outstanding on these promissory notes ($765,000
outstanding at December 31, 1994). As of February 1996, Continental
remains current on all payments due under the promissory notes. The
General Partner believes that the carrying value of these notes at
December 31, 1995, exceeded their fair market value, however the actual
market value cannot be reasonably estimated.
During 1995, the Partnership sold or disposed of 462 marine
containers with a net book value of $0.7 million for $0.8 million. The
Partnership also sold one vessel with a net book value of $3.7 million
for $5 million related to a sales-type lease. In addition, 199 railcars
and 5 locomotives were sold with a net book value of $1.1 million for
$2.5 million.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
3. Equipment (continued)
During 1994, the Partnership sold or disposed of 811 marine
containers with a net book value of $1.14 million for $1.23 million.
The Partnership also sold two aircraft during 1994 with a combined net
book value of $3.9 million for $2.7 million. In addition, 57
over-the-road trailers and 33 railcars with a combined net book value
of $0.5 million were sold for $0.6 million. In the fourth quarter of
1994, two marine vessels were sold with a combined net book value of
$8.3 million for $12.1 million. During December 1994, the Partnership
reduced the carrying value of 5 locomotives by $0.2 million, 77 marine
containers by $0.1 million, and 2 aircraft engines by $0.8 million.
During 1995, the Partnership purchased a 17% beneficial interest
in two trusts, comprised of three commercial aircraft, two aircraft
engines, and a package of aircraft rotables for $5.0 million, and paid
acquisition fees of $0.23 million to an affiliate of the General
Partner. The remaining interest is
owned by affiliated partnerships. Also, the Partnership purchased one
aircraft for $4.3 million, 30 tank cars for $.63 million and paid
acquisition fees of $0.19 million and $0.03 million respectively to PLM
Transportation Equipment Corporation, a wholly-owned subsidiary of the
General Partner.
At December 31, 1995, the Partnership had no outstanding purchase
commitments.
All leases are being accounted for as operating leases except one
finance lease on a vessel, (see note 4). Future minimum rentals
receivable under noncancelable operating leases at December 31, 1995,
during each of the next five years are approximately $15.8 million -
1996; $11.7 million - 1997; $6.4 million in 1998; $4.6 million in 1999,
and $2.2 million in 2000. Contingent rentals based upon utilization
were $4.8 million, $12.4 million, and $8.6 million in 1995, 1994, and
1993, respectively.
The Partnership owns certain equipment which is leased and
operated internationally. All leases relating to this equipment were
denominated in U.S. dollars.
The Partnership leases its aircraft, railcars, mobile offshore
drilling unit, and trailers to lessees domiciled in five geographic
regions: North America, Europe, South Asia, Southeast Asia and Asia.
The marine vessels and marine containers are leased to multiple lessees
in different regions who operate the marine vessels and marine
containers worldwide. The tables below set forth geographic information
about the Partnership's equipment grouped by domicile of the lessee as
of and for the years ended December 31, 1995, 1994, and 1993 (in
thousands):
Region 1995 1994 1993
--------------------------------------------
Revenues:
Marine vessels Various $ 4,619 $ 15,210 $ 16,996
Marine containers Various 1,875 2,292 3,010
Mobile offshore drilling unit South Asia -- 584 1,725
North America 1,299 1,144 --
Railcars North America 7,832 7,990 8,770
Trailers North America 1,944 1,501 670
Aircraft Various 504 973 1,500
Europe 531 1,320 1,440
South Asia 1,512 1,512 1,512
Asia 1,200 1,200 1,150
North America 1,565 1,320 1,310
Aircraft components Europe 35 -- --
Aircraft engines Europe 260 238 238
Southeast Asia 192 941 1,211
------------------------------------------
===
Total lease revenues 23,368 36,225 39,532
============================================
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
3. Equipment (continued)
The following table below sets forth identifiable income (loss)
information by equipment type by region (in thousands):
Region 1995 1994 1993
--------------------------------------------
Net income (loss)
Marine vessels Various $ 2,260 $ 2,986 $ 476
Marine containers Various 781 691 1,147
Mobile offshore drilling unit South Asia -- (500) (80)
North America (47) (700) --
Railcars North America 3,153 1,975 707
Trailers North America 275 212 193
Aircraft Various 152 424 988
Europe 7 (1,106) 673
South Asia (71) 219 33)
Asia 69 (181) (389)
North America 306 556 545
Aircraft components Europe 10 -- --
Aircraft engines Europe 90 45 40
Southeast Asia (474) (772) 269
--------------------------------------------
Total identifiable net income 6,511 3,849 4,602
Administrative and other net loss North America (3,805) (3,597) (4,843)
----------------------------------------
===
Total net income (loss) 2,706 252 (241)
============================================
The net book value of these assets at December 31, 1995 ,1994, and
1993, are as follows (in thousands):
Region 1995 1994 1993
--------------------------------------------
Marine vessels Various $ 9,321 $ 15,714 $ 28,355
Marine containers Various 5,121 6,937 9,653
Mobile offshore drilling unit South Asia -- -- 8,351
North America -- 7,769 --
Railcars North America 13,714 16,045 18,846
Trailers North America 5,270 6,285 4,763
Aircraft Various 1,501 1,824 2,802
Europe 4,216 -- 3,965
South Asia 4,653 5,585 6,699
Asia 5,349 6,419 7,703
North America 7,186 3,836 4,612
Aircraft components Europe 303 -- --
Aircraft engines Europe 907 871 1,045
Southeast Asia 2,712 3,253 4,833
---------------------------------------------
Total equipment held for operating
leases 60,253 74,538 101,627
Railcars held for sale 475 -- --
Mobile offshore drilling unit held for sale 6,427 -- --
--------------------------------------------
Marine containers held for sale -- -- 80
--------------------------------------------
==
Total Equipment 67,155 74,538 101,707
=============================================
No lessees comprised more than 10% of total revenues in 1995, 1994, or
1993.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
4. Notes Payable
In December 1994, the Partnership refinanced its two existing loans of
$35 million and $5.8 million into one of $41 million. The loan is a two
year unsecured revolving line of credit, converting to a three year,
nine month term loan, with mandatory amortization beginning one year
after conversion date. Prior to conversion, the terms of the loan
provide for interest only payable monthly in arrears computed at LIBOR
plus 1.5% per annum (7.355% at December 31, 1995 and 7.625% at December
31, 1994). 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.
The General Partner believes that the book value of the notes
payable approximates fair value due to its variable interest rate.
5. Debt
The General Partner has entered into a joint $25 million credit
facility (the Committed Bridge Facility) on behalf of the Partnership,
PLM Equipment Growth Fund II, PLM Equipment Growth Fund IV, PLM
Equipment Growth Fund V, PLM Equipment Growth Fund VI, and PLM
Equipment Growth and Income Fund VII, and Professional Lease Management
Income Fund I (Fund I), all affiliated investment programs, and TEC
Acquisub, Inc. (TECAI), an indirect wholly-owned subsidiary of the
General Partner, 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 the Partnership or Fund I
plus (ii) 50% of unrestricted cash held bythe borrower. The Committed
Bridge Facility became available on December 20, 1993 and became
available to the Company on May 8, 1995, and was amended and restated
on September 27, 1995 to expire on September 30, 1996. The Committed
Bridge Facility also provides for a $5 million Letter of Credit
Facility for the eligible borrowers. Outstanding borrowings by Fund I,
TECAI, or PLM Equipment Growth Funds II 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 September 30, 1996. 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 borrower's option and is set at the time of an
advance of funds. As of December 31, 1995, neither the Partnership, any
of the programs, nor TECAI had any outstanding borrowings.
6. Income Taxes
The Partnership is not subject to income taxes as any income or loss is
included in the tax returns of the individual Partners. Accordingly, no
provision for income taxes has been made in the financial statements of
the Partnership.
As of December 31, 1995, there were temporary differences of
approximately $23.6 million between the financial statement carrying
values of certain assets and liabilities and the income tax basis of
such assets and liabilities, primarily due to differences in
depreciation methods and equipment reserves.
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
7. Repurchase of Depositary Units
On December 28, 1992, the Partnership engaged in a program to
repurchase up to 250,000 Depository Units. In the 12 months ended
December 31, 1995, the Partnership repurchased 65,900 Depositary Units
at a cost of $0.4 million.
8. Future Delisting of Partnership Units
The Partnership's Depositary Units began trading (under the ticker
symbol GFZ) on August 16, 1991, on the American Stock Exchange (AMEX).
As of March 14, 1996, there were 9,871,926 Depositary Units
outstanding. There are approximately 12,500 Depositary Unitholders of
record as of the date of this report. Under the Internal Revenue Code
(the Code) the Partnership is classified as a Publicly Traded
Partnership. The Code treats all Publicly Traded Partnerships as
corporations if they remain publicly traded after December 31, 1997.
Treating the Partnership as a corporation will mean the Partnership
itself will become a taxable, rather than a "flow through" entity. As a
taxable entity, the income of the Partnership will be subject to
federal taxation at both the partnership level and at the investor
level to the extent that income is distributed to an investor. In
addition, the General Partner believes that the trading price of the
Depositary Units may be distorted when the Partnership begins the final
liquidation of the underlying equipment portfolio. In order to avoid
taxation of the Partnership as a corporation and to prevent unfairness
to Unitholders, the General Partner has requested to delist the
Partnership's Depositary Units from the AMEX prior to March 29, 1996.
The last day for trading on the AMEX will be March 22, 1996. While the
Partnership's Depositary Units will no longer be publicly traded on a
national stock exchange, the General Partner will continue to manage
the equipment of the Partnership and prepare and distribute quarterly
and annual reports and Forms 10-Q and 10-K in accordance with the
Securities and Exchange Commission requirements. In addition, the
General Partner will continue to provide pertinent tax reporting forms
and information to Unitholders. The General Partner anticipates that
following delisting, an informal market for the Partnership's units may
develop in the secondary marketplace similar to that which currently
exists for non-publicly traded partnerships
9. Net Investment in Sales-type Lease
On February 27, 1995, the Partnership entered into a sales-type lease
for the purpose of selling a marine vessel. The lease is structured
with a four-year term which commenced in March of 1995. The vessel is
leased on a standard bareboat charter lease and the lessee is to make
monthly payments. Gross lease payments of $5.9 million are to be
received over a four-year period, which commenced in March of 1995,
with an additional balloon payment of $1.7 million due at the end of
the lease term. The lessee has the option to purchase the vessel at any
time during the four-year term at a predetermined buyout price
stipulated in the charter agreement.
The components of the net investment in sales-type lease at December
31, 1995 is as follows (in thousands):
Total minimum lease payments $ 6,403
Less: Unearned income 1,885
-------------
4,518
=============
PLM EQUIPMENT GROWTH FUND III
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
10. Subsequent Event
On March 11, 1996, the Partnership declared quarterly distributions of
$0.25 per outstanding depositary unit, payable May 15, 1996 to
Unitholders of record as of March 29, 1996.
On March 5, 1996, the Partnership has received proceeds of $1.2 million
for the 110 coal cars which were reclassed as assets held for sale at
the end of December 31, 1995.
As of February 21, 1996, the Partnership entered into a signed
Memorandum of Agreement to sell its 45%-owned mobile offshore drilling
unit (rig) for $14.2 million. The net book value of the 45%-owned rig
at December 31, 1995 was $6.4 million. The rig was included in assets
held for sale at December 31, 1995.
PLM EQUIPMENT GROWTH FUND III
INDEX OF EXHIBITS
Exhibit Page
4. Limited Partnership Agreement of Partnership *
4.1 Amendment, dated November 18, 1991, to Limited Partnership *
Agreement of Partnership
10.1 Management Agreement between Partnership and PLM Investment *
Management, Inc.
10.2 $41,000,000 Credit Agreement dated as of December 13, 1994 with *
First Union National Bank of North Carolina
10.3 Amended and Restated Warehousing Credit Agreement dated September 27,
1995, First Union National Bank of North Carolina. *
25. Powers of Attorney. 45-47
* Incorporated by reference. See page 26 of this report.