UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended June 30, 1996.
or
[ ] 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 0-15436
-----------------------
PLM EQUIPMENT GROWTH FUND
(Exact name of registrant as specified in its charter)
California 94-2998816
(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
-----------------------
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 ______
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
BALANCE SHEETS
(in thousands, except unit amounts)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------------------------------
<S> <C> <C>
Equipment held for operating leases, at cost $ 46,779 $ 52,762
Less accumulated depreciation (34,045 ) (36,198)
---------------------------------
12,734 16,564
Equipment held for sale -- 2,298
---------------------------------
Net equipment 12,734 18,862
Cash and cash equivalents 3,058 1,474
Restricted cash 1,053 332
Investments in unconsolidated special purpose entities 15,594 16,871
Accounts receivable, less allowance for doubtful accounts
of $42 at June 30, 1996, and $55 at December 31, 1995 1,086 1,282
Prepaid expenses and other assets 15 85
Deferred charges, net of accumulated amortization of
$43 at June 30, 1996, and $17 at December 31, 1995 129 155
---------------------------------
Total assets $ 33,669 $ 39,061
=================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 420 $ 665
Due to affiliates 110 100
Security deposits 189 126
Prepaid deposits and reserve for repairs 819 836
Notes payable 14,000 23,000
---------------------------------
Total liabilities 15,538 24,727
Partners' capital (deficit):
Limited Partners (5,785,350 Depositary Units
at June 30, 1996, and 5,810,150 Depositary
Units at December 31, 1995) 18,367 14,609
General Partner (236 ) (275)
---------------------------------
Total partners' capital 18,131 14,334
---------------------------------
Total liabilities and partners' capital $ 33,669 $ 39,061
=================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
STATEMENTS OF INCOME
(in thousands, except per unit amounts)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
1996 1995 1996 1995
------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Lease revenue $ 2,541 $ 5,202 $ 5,383 $ 11,222
Interest and other income 21 94 90 171
Net gain on disposition of equipment 1,555 1,148 12,893 1,791
------------------------------------------------------------
Total revenues 4,117 6,444 18,366 13,184
Expenses:
Depreciation and amortization 887 2,194 1,850 4,480
Management fees to affiliate 377 347 517 683
Repairs and maintenance 621 360 1,058 1,167
Interest expense 262 541 663 1,072
Insurance expense to affiliate -- 37 -- 131
Other insurance expense 21 126 43 200
Marine equipment operating expenses -- 618 -- 1,306
General and administrative expenses to affiliate 191 203 407 421
Other general and administrative expenses 150 191 257 294
------------------------------------------------------------
Total expenses 2,509 4,617 4,795 9,754
Equity in net income (loss) of unconsolidated
special purpose entities 435 -- (150 ) --
------------------------------------------------------------
Net income $ 2,043 $ 1,827 $ 13,421 $ 3,430
============================================================
Partners' share of net income:
Limited Partners $ 2,023 $ 1,793 $ 13,287 $ 3,362
General Partner 20 34 134 68
------------------------------------------------------------
Total $ 2,043 $ 1,827 $ 13,421 $ 3,430
============================================================
Net income per Depositary
Unit (5,785,350 Units at June
30, 1996; 5,820,150 Units at
June 30, 1995) $ 0.35 $ 0.31 $ 2.30 $ 0.58
============================================================
Cash distributions $ 1,688 $ 3,391 $ 5,063 $ 6,788
============================================================
Cash distributions per Depositary Unit $ 0.29 $ 0.58 $ 0.87 $ 1.15
============================================================
Special distributions $ -- $ -- $ 4,398 $ --
============================================================
Special distributions per Depositary Unit $ -- $ -- $ 0.75 $ --
============================================================
Total distributions per Depositary Unit $ 0.29 $ 0.58 $ 1.62 $ 1.15
============================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the period from December 31, 1994 through June
30, 1996
(in thousands)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
------------------------------------------------------
<S> <C> <C> <C>
Partners' capital (deficit) at December 31, 1994 $ 24,374 $ (311 ) $ 24,063
Net income 4,063 171 4,234
Repurchase of Depositary Units (414 ) -- (414 )
Cash distributions (13,414 ) (135 ) (13,549 )
-----------------------------------------------------
Partners' capital (deficit) at December 31, 1995 14,609 (275 ) 14,334
Net income 13,287 134 13,421
Repurchase of Depositary Units (163 ) -- (163 )
Cash distributions (5,012 ) (51 ) (5,063 )
Special distributions (4,354 ) (44 ) (4,398 )
-----------------------------------------------------
Partners' capital (deficit) at June 30, 1996 $ 18,367 $ (236 ) $ 18,131
=====================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the six months
ended June 30,
1996 1995
----------------------------------
<S> <C> <C>
Operating activities:
Net income $ 13,421 $ 3,430
Adjustment to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,850 4,480
Net gain on disposition of equipment (12,893 ) (1,791 )
Cash distributions from unconsolidated special
purpose entities in excess of income 1,277 --
Changes in operating assets and liabilities:
Accounts receivable, net 297 236
Due to affiliates 10 (45 )
Prepaid expenses and other assets (31 ) 59
Restricted cash 58 (54 )
Accounts payable and accrued expenses (245 ) (98 )
Security deposits 63 54
Prepaid deposits and reserve for repairs (17 ) (404 )
---------------------------------
Net cash provided by operating activities 3,790 5,867
---------------------------------
Investing activities:
Payments for capital improvements (59 ) (40 )
Proceeds from disposition of equipment 17,256 6,534
---------------------------------
Net cash provided by investing activities 17,197 6,494
---------------------------------
Financing activities:
Principal repayment under note payable (9,000 ) --
Increase in restricted cash (779 ) (2,404 )
Cash distributions paid to Limited Partners (5,012 ) (6,720 )
Cash distributions paid to General Partner (51 ) (68 )
Special distributions paid to Limited Partners (4,354 ) --
Special distributions paid to General Partner (44 ) --
Repurchases of Depositary Units (163 ) (334 )
---------------------------------
Net cash used in financing activities (19,403 ) (9,526 )
---------------------------------
Net increase in cash and cash equivalents 1,584 2,835
Cash and cash equivalents at beginning of period 1,474 2,542
---------------------------------
Cash and cash equivalents at end of period $ 3,058 $ 5,377
=================================
Supplemental information:
Interest paid $ 669 $ 1,044
=================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
1. Opinion of Management
In the opinion of the management of PLM Financial Services, Inc., the
General Partner, the accompanying unaudited financial statements contain
all adjustments necessary, consisting primarily of normal recurring
accruals, to present fairly the financial position of PLM Equipment Growth
Fund (the Partnership) as of June 30, 1996, the statements of income for
the three and six months ended June 30, 1996 and 1995, the statements of
changes in Partners' capital for the period from December 31, 1994 through
June 30, 1996, and the statements of cash flows for the six months ended
June 30, 1996 and 1995. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
from the accompanying financial statements. For further information,
reference should be made to the financial statements and notes thereto
included in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1995, on file at the Securities and Exchange Commission.
2. Investments in Unconsolidated Special Purpose Entities
Prior to 1996, the Partnership accounted for operating activities
associated with joint ownership of transportation equipment as undivided
interests, including its proportionate share of each asset with similar
wholly-owned assets in its financial statements. Under generally accepted
accounting principles, the effects of such activities, if material, should
be reported using the equity method of accounting. Therefore, effective
January 1, 1996, the Partnership adopted the equity method to account for
its investment in such jointly-held assets.
The principle differences between the previous accounting method and the
equity method relate to the presentation of activities relating to these
assets in the statement of operations. Whereas, under equity accounting the
Partnership's proportionate share is presented as a single net amount,
"Equity in net income (loss) of unconsolidated special purpose entities",
under the previous method, the Partnership's income statement reflected its
proportionate share of each individual item of revenue and expense.
Accordingly, the effect of adopting the equity method of accounting has no
cumulative effect on previously reported partner's capital or on the
Partnership's net income (loss) for the period of adoption. Because the
effects on previously issued financial statements of applying the equity
method of accounting to investments in jointly-owned assets are not
considered to be material to such financial statements taken as a whole,
previously issued financial statements have not been restated. However,
certain items have been reclassified in the previously issued balance sheet
to conform to the current period presentation.
The net investments in unconsolidated special purpose entities include the
following jointly-owned equipment (and related assets and liabilities) (in
thousands):
<TABLE>
<CAPTION>
June 30, December 31,
% Ownership Equipment 1996 1995
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
50% Product Tanker $ 2,517 $ 2,615
50% Aircraft engine 549 731
50% Boeing 737-200 2,018 2,368
50% Fairchild Metro III 108 170
55% Mobile Offshore drilling unit 7,350 7,295
70% Fairchild Metro III -- 358
12% Boeing 767-200 3,052 3,334
---------------------------------
Net investments $ 15,594 $ 16,871
=================================
</TABLE>
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
2. Investments in Unconsolidated Special Purpose Entities (continued)
During the six months ended June 30, 1996, the Partnership sold its 70%
investment in a commuter aircraft with a net book value of $0.3 million for
$0.6 million. During the six months ended June 30, 1995, the Partnership
sold its 50% investments in a marine vessel, a commuter aircraft and a
commercial aircraft with an aggregate net book value of $4.3 million, for
aggregate proceeds of $4.7 million. Included in the gain on sale of the
marine vessel in 1995 is the unused portion of accrued drydocking of $0.3
million.
At June 30, 1996, certain jointly-owned equipment was subject to pending
contracts for sale. The Partnership's investment in these assets is
reported in "Investments in unconsolidated special purpose entities." The
investments being sold consisted of a 55% investment in a mobile offshore
drilling unit with a sale contract amount of $15.1 million, and a net book
value of $7.2 million, a 50% investment in an aircraft engine with a sale
contract amount of $1.3 million, and a net book value of $0.7 million, and
a 50% investment in a commuter aircraft with a sale contract amount of $0.4
million, and a net book value of $0.2 million. At December 31, 1995,
"Investments in unconsolidated special purpose entities" included the
Partnership's investment in the 55% owned mobile offshore drilling unit
that was subject to a pending contract for sale. (See Note 7)
The Partnership's 50% investment in the commuter aircraft held for sale and
included in "Investments in unconsolidated special purpose entities," was
off lease at June 30, 1996.
3. Distributions
Distributions are recorded when paid. Operating cash distributions were
$5.1 million and $6.8 million for the six months ended June 30, 1996 and
1995, respectively. In addition, a $4.4 million special distribution was
paid to the partners during the six months ended June 30, 1996, from the
proceeds of seven offshore supply vessels sold in January 1996, with a net
book value of $2.3 million for proceeds of $13.4 million, representing
approximately 8% of the Partnership's portfolio on an original cost basis.
There were no special distributions paid to partners during the six months
ended June 30, 1995. Cash distributions to Unitholders in excess of net
income are considered to represent a return of capital. During the six
months ended June 30, 1995, cash distributions to Unitholders of $3.4
million were deemed to be a return of capital.
4. Delisting of Partnership Units and Depositary Unit Repurchase Plan
The Partnership had engaged in a program to repurchase up to 250,000
Depositary Units. During the six months ended June 30, 1996, the
Partnership had repurchased 24,800 Depositary Units at a cost of $163,000.
As of June 30, 1996, the Partnership had repurchased a total of 199,650
Depositary Units at a cost of $2.6 million.
The General Partner delisted the Partnership's Depositary units from the
American Stock Exchange (AMEX) on April 8, 1996. The last day for trading
on the AMEX was March 22, 1996. Under the Internal Revenue Code (the Code)
the Partnership was classified as a Publicly Traded Partnership. The Code
treats all Publicly Traded Partnerships as corporations if they are
publicly traded after December 31, 1997. Treating the Partnership as a
corporation would mean the Partnership itself would have become a taxable,
rather than a "flow through" entity. As a taxable entity, the income of the
Partnership would have become subject to federal taxation at both the
partnership level and at the investor level to the extent that income would
have been distributed to an investor. In addition, the General Partner
believed that the trading price of the Depositary Units would have become
distorted when the Partnership began 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 delisted the Partnership's Depositary Units from the AMEX.
While the Partnership's Depositary Units are no longer publicly traded on a
national stock exchange, the General Partner continues to manage the
equipment of the Partnership and prepare and distribute
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
4. Delisting of Partnership Units and Depositary Unit Repurchase Plan
(continued)
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 continues to provide pertinent tax reporting forms and information
to Unitholders. The General Partner anticipates 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.
5. Equipment
Owned equipment held for operating leases is stated at cost. Equipment held
for sale is stated at the lower of the equipment's depreciated cost or
estimated net realizable value and is subject to a pending contract for
sale.
The components of owned equipment are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------------------------------
<S> <C> <C>
Rail equipment $ 22,042 $ 24,339
Marine containers 8,250 8,728
Aircraft and aircraft engines 6,299 8,992
Trailers 10,188 10,703
--------------------------------
46,779 52,762
Less accumulated depreciation (34,045 ) (36,198 )
--------------------------------
12,734 16,564
Equipment held for sale -- 2,298
--------------------------------
================================
Net equipment $ 12,734 $ 18,862
================================
</TABLE>
At December 31, 1995, equipment held for sale included seven offshore
supply vessels with a net book value of $2.3 million, which were sold in
January 1996, for $13.4 million.
Revenues are earned by placing the equipment under operating leases which
are generally billed monthly or quarterly. Some of the Partnership's marine
containers are leased to operators of utilization-type leasing pools which
include equipment owned by unaffiliated parties. In such instances,
revenues received by the Partnership consist of a specified percentage of
revenues generated by leasing the equipment to sublessees, after deducting
certain direct operating expenses of the pooled equipment. Rents for
railcars are based on mileage traveled or a fixed rate; rents for all other
equipment are based on fixed rates.
As of June 30, 1996, all equipment in the Partnership's portfolio was on
lease or operating in PLM-affiliated short-term trailer rental facilities
except for 54 marine containers and 1 railcar with net book values of
$15,000 and $9,000, respectively.
In the third quarter of 1994, the Partnership ended its reinvestment phase
in accordance with the Limited Partnership Agreement; therefore, no
equipment was purchased during the six months ended June 30, 1996 and 1995.
Capital improvements to the Partnership's equipment, totaling $59,000 and
$40,000 were made during the six months ended June 30, 1996 and 1995,
respectively.
During the six months ended June 30, 1996, the Partnership sold or disposed
of 7 offshore supply vessels, 166 marine containers, 27 trailers, 1
aircraft engine, and 29 railcars with an aggregate net book value of $4.4
million for proceeds of $17.3 million. During the six months ended June 30,
1995, the Partnership sold or disposed of 247 marine containers, 35
trailers, and 15 railcars with an aggregate net book value of $0.7 million
for aggregate proceeds of $1.6 million.
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
6. Debt
On June 28, 1996, the Partnership made a $0.9 million debt payment on its
adjustable rate senior secured note agreement, with equipment sales
proceeds, to reduce the outstanding debt obligation to $14.0 million.
7. Subsequent Events
During July 1996, the General Partner sold a mobile offshore drilling unit
(rig), in which the Partnership had a 55% investment, and an aircraft
engine and a commuter aircraft in which the Partnership had 50%
investments. The Partnership received $15.1 million for its $7.2 million
investment in the rig, $1.3 million for its $0.7 million investment in the
aircraft engine, and $0.4 million for its $0.2 million investment in the
commuter aircraft. All three investments were included in "Investments in
unconsolidated special purpose entities" at June 30, 1996.
Cash distributions of $1.7 million ($0.289 per Depositary Unit) and special
distributions of $5.8 million ($1.00 per Depositary Unit) were declared on
July 30, 1996, and are to be paid on August 15, 1996, to the Unitholders of
record as of June 30, 1996.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(I) RESULTS OF OPERATIONS
Comparison of the Partnership's Operating Results for the Three Months Ended
June 30, 1996 and 1995
(A) Owned equipment operations
Lease revenues less direct expenses (defined as repairs and maintenance, marine
equipment operating, and asset specific insurance expenses) on owned equipment
decreased during the second quarter of 1996 when compared to the same quarter of
1995. The following table presents lease revenues less direct expenses by owned
equipment type (in thousands):
<TABLE>
<CAPTION>
For the three months
ended June 30,
1996 1995
----------------------------
<S> <C> <C>
Aircraft and aircraft engine $ 59 $ 152
Trailers 271 518
Rail equipment 1,264 1,456
Marine containers 305 390
Marine vessels -- 416
</TABLE>
Aircraft: Aircraft lease revenues and direct expenses were $0.2 million and $0.1
million, respectively, for the three months ended June 30, 1996, compared to
$0.2 million and ($2,000), respectively, during the same quarter of 1995. The
Partnership's aircraft engine experienced higher repairs and maintenance expense
during the second quarter of 1996, resulting in a lower aircraft net
contribution;
Trailers: Trailer lease revenues and direct expenses were $0.4 million and $0.1
million, respectively, for the three months ended 1996, compared to $0.6 million
and $0.1 million, respectively, during the same quarter of 1995. The trailer
fleet decreased due to the sale of 45 trailers during 1995, and 27 trailers
during 1996. In addition, the trailer fleet is experiencing lower utilization in
the PLM affiliated short-term rental yards;
Rail equipment: Rail equipment lease revenues and direct expenses were $1.7
million and $0.4 million, respectively, for the three months ended 1996,
compared to $1.7 million and $0.2 million, respectively, during the same quarter
of 1995. Although the railcar fleet remained relatively the same size for both
quarters, the decrease in railcar contribution was the result of running repairs
required on certain of the railcars in the fleet during 1996 which were not
needed during 1995;
Marine containers: Marine container lease revenues and direct expenses were $0.3
million and $2,000, respectively, for the three months ended 1996, compared to
$0.4 million and $3,000, respectively, during the same quarter of 1995. The
number of marine containers owned by the Partnership has been declining over the
past twelve months due to sales and dispositions. The result of this declining
fleet has resulted in a decrease in marine container net contribution;
Marine vessels: There were no marine vessel lease revenues or direct expenses
during the second quarter ended June 30, 1996. Marine vessel lease revenues and
direct expenses were $0.4 million and $2,000 for the three months ended June 30,
1995. The decrease was due to the sale of seven offshore supply vessels during
the first quarter of 1996, which were on lease for the entire second quarter of
1995.
(B) Indirect expenses related to owned equipment operations
Total indirect expenses of $1.9 million for the quarter ended June 30, 1996,
decreased from $2.3 million for the same period in 1995. The variances are
explained as follows:
(a) A $0.2 million decrease in depreciation and amortization expenses from 1995
levels reflecting the sale of certain assets during 1996 and 1995;
(b) A $0.3 million decrease in interest expense due to reductions in the
Partnership's outstanding debt;
(c) A $0.1 million increase in management fees to affiliate due to an increase
in the Partnership's operating cash flows. Management fees are based on the
greater of i) 10% of "Cash Flows," or ii) 1/12 of 1/2% of the net book value of
the equipment portfolio subject to reductions in certain events described in the
Limited Partnership Agreement.
(C) Net gain on disposition of owned equipment
Net gain on disposition of equipment for the second quarter of 1996 totaled $1.6
million which resulted mainly from the sale or disposition of 22 railcars, 21
trailers, 1 aircraft engine and 84 marine containers with an aggregate net book
value of $1.9 million, for aggregate proceeds of $3.5 million. For the second
quarter of 1995, the $0.2 million net gain on disposition of equipment resulted
from the sale or disposal of 160 marine containers, 29 trailers and 3 railcars
with an aggregate net book value of $0.2 million, for aggregate proceeds of $0.4
million.
(D) Interest and other income
Interest and other income decreased $0.1 million during the second quarter of
1996 due primarily to lower cash balances compared to the same quarter of 1995.
(E) Equity in net income (loss) of unconsolidated special purpose entities
represents net income (loss) generated from the operation of jointly-owned
assets accounted for under the equity method (see Note 2 to the financial
statements).
<TABLE>
<CAPTION>
For the three months
ended June 30,
1996 1995
----------------------------
<S> <C> <C>
Aircraft and aircraft engines $ 405 $ 351
Marine vessels 13 550
Mobile offshore drilling unit 17 (59 )
</TABLE>
Aircraft and aircraft engines: The Partnership's share of aircraft revenues and
expenses were $0.7 million and $0.3 million, respectively, for the three months
ended June 30, 1996, compared to $0.9 million and $0.5 million, respectively,
during the same quarter of 1995. As of June 30, 1996, the Partnership owned 50%
investments in an aircraft engine, a commercial aircraft and a commuter aircraft
and a 12% interest in a commercial aircraft. The Partnership sold its 70%
investment in a commuter aircraft during the second quarter of 1996, resulting
in a $0.3 million net gain. The Partnership's remaining aircraft generated $0.1
million of net income during the three months ended June 30, 1996.
During the second quarter of 1995, the Partnership sold its 50% investments in a
commuter and a commercial aircraft, resulting in aggregate gains of $0.4 million
and net income of $0.4 million. The Partnership's remaining aircraft joint
investments operated at essentially break even during the second quarter of
1995;
Marine vessel: The Partnership's share of marine vessel revenues and expenses
were $0.5 million and $0.5 million, respectively, for the three months ended
June 30, 1996, compared to $1.6 million and $1.0 million, respectively, during
the same quarter of 1995. During 1995 and 1996, the Partnership owned a 50%
investment in a marine vessel that experienced lower daily rates in the second
quarter of 1996, compared to the second quarter of 1995.
In addition, the Partnership had a 50% investment in a marine vessel that was
sold during the second quarter of 1995, for a gain of $0.5 million. This vessel
generated $0.4 million in net income during the second quarter of 1995. There
was no similar net income during 1996;
<PAGE>
Mobile offshore drilling unit: The Partnership's share of mobile offshore
drilling unit (rig) revenues and expenses were $0.4 million and $0.4 million,
respectively, for the three months ended June 30, 1996, compared to $0.4 million
and $0.5 million, respectively, during the same quarter of 1995. As of June 30,
1996, the Partnership owned a 55% investment in a rig. Net income generated from
the rig increased slightly in the second quarter of 1996 due to lower
depreciation expenses compared to the prior year second quarter.
(F) Net Income
As a result of the foregoing, the Partnership's net income of $2.0 million for
the second quarter of 1996, increased from net income of $1.8 million during the
same quarter in 1995. The Partnership's ability to operate and 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 the second quarter of 1996 is not necessarily indicative of future periods.
During the second quarter of 1996, the Partnership distributed $1.7 million to
the Unitholders, or $0.29 per Depositary Unit.
Comparison of the Partnership's Operating Results for the Six Months Ended
June 30, 1996 and 1995
(A) Owned equipment operations
Lease revenues less direct expenses (defined as repairs and maintenance, marine
equipment operating, and asset specific insurance expenses) on owned equipment
decreased during the six months ended June 30, 1996 when compared to the same
period of 1995. The following table presents lease revenues less direct expenses
by owned equipment type (in thousands):
<TABLE>
<CAPTION>
For the six months
ended June 30,
1996 1995
----------------------------
<S> <C> <C>
Aircraft and aircraft engines $ 229 $ 199
Trailers 651 1,057
Rail equipment 2,571 2,748
Marine containers 687 829
Marine vessels 144 829
</TABLE>
Aircraft: Aircraft lease revenues and direct expenses were $0.2 million and
$15,000, respectively, for the six months ended 1996, compared to $0.2 million
and $41,000, respectively, during the same period of 1995. The owned aircraft
fleet remained essentially the same size during both periods resulting in
essentially the same net contribution for both periods;
Trailers: Trailer lease revenues and direct expenses were $0.9 million and $0.3
million, respectively, for the six months ended 1996, compared to $1.3 million
and $0.2 million, respectively, during the same period of 1995. The trailer
fleet decreased due to the sale of 45 trailers during 1995, and 27 trailers
during 1996. In addition, the trailer fleet is experiencing lower utilization in
the PLM affiliated short-term rental yards;
Rail equipment: Rail equipment lease revenues and direct expenses were $3.4
million and $0.8 million, respectively, for the six months ended 1996, compared
to $3.4 million and $0.7 million, respectively, during the same period of 1995.
Although the railcar fleet remained relatively the same size for both periods,
the decrease in railcar contribution resulted from running repairs required on
certain of the railcars in the fleet during 1996 which were not needed during
1995;
Marine containers: Marine container lease revenues and direct expenses were $0.7
million and $5,000, respectively, for the six months ended 1996, compared to
$0.8 million and $9,000, respectively, during the same period of 1995. The
number of marine containers owned by the Partnership has been declining over the
past twelve months due to sales and dispositions. The result of this declining
fleet has resulted in a decrease in marine container net contribution;
Marine vessels: Marine vessel lease revenues and direct expenses were $0.1
million and ($18,000), respectively, for the six months ended 1996, compared to
$1.3 million and $0.2 million, respectively, during the same period of 1995. The
decrease was due to the sale of seven offshore supply vessels during the first
quarter of 1996, which were on-lease for the entire similar period in 1995.
(B) Indirect expenses related to owned equipment operations
Total indirect expenses of $3.7 million for the six months ended June 30, 1996,
decreased from $4.5 million for the same period in 1995. The variances are
explained as follows:
(a) A $0.5 million decrease in depreciation and amortization expenses from 1995
levels reflecting the sale of certain assets during 1996 and 1995;
(b) A $0.4 million decrease in interest expense due to reductions in the
Partnership's outstanding debt;
(c) A $0.1 million increase in management fees to affiliate due to an increase
in the Partnership's operating cash flows. Management fees are based on the
greater of i) 10% of "Cash Flows," or ii) 1/12 of 1/2% of the net book value of
the equipment portfolio subject to reductions in certain events described in the
Limited Partnership Agreement.
(C) Net gain on disposition of owned equipment
Net gain on disposition of equipment for the six months ended June 30, 1996
totaled $12.9 million which resulted mainly from the sale of seven offshore
supply vessels with a net book value of $2.3 million, for proceeds of $13.4
million. The remaining gain resulted from the sale or disposal of 166 marine
containers, 27 trailers, 1 aircraft engine, and 29 railcars, with an aggregate
net book value of $2.1 million for aggregate proceeds of $3.9 million. For the
six months ended June 30, 1995, the $0.9 million net gain on disposition of
equipment resulted from the sale or disposal of 247 marine containers, 35
trailers, and 15 railcars with an aggregate net book value of $0.7 million, for
aggregate proceeds of $1.6 million.
(D) Interest and other income
Interest and other income decreased $0.1 million during the six months ended
June 30, 1996 due primarily to lower cash balances available for investments
when compared to the same period of 1995.
(E) Equity in net income (loss) of unconsolidated special purpose entities
represents net income (loss) generated from the operation of jointly-owned
assets accounted for under the equity method (see Note 2 to the financial
statements).
<TABLE>
<CAPTION>
For the six months
ended June 30,
1996 1995
----------------------------
<S> <C> <C>
Aircraft and aircraft engines $ (41 ) $ 406
Marine vessels (117 ) 783
Mobile offshore drilling unit 8 65
</TABLE>
Aircraft and aircraft engines: The Partnership's share of aircraft revenues and
expenses were $1.1 million and $1.1 million, respectively, for the six months
ended June 30, 1996, compared to $1.6 million and $1.2 million, respectively,
during the same period of 1995. As of June 30, 1996, the Partnership owned 50%
investments in an aircraft engine, a commercial aircraft and a commuter aircraft
and a 12% interest in a commercial aircraft. The Partnership sold its 70%
investment in a commuter aircraft during the six months ended June 30, 1996,
resulting in a $0.3 million net gain. Net loss during the six months ended June
30, 1996 of $0.3 million related to the Partnership's 50% investment in a
commercial aircraft and resulted from an increase in the allowance for doubtful
accounts related to a financially troubled lessee. The Partnership's remaining
aircraft investments operated at essentially break even during the six months
ended June 30, 1996.
During the six months ended June 30, 1995, the Partnership sold its 50%
investments in a commuter and a commercial aircraft, resulting in aggregate
gains of $0.4 million and aggregate net income of $0.3 million. The
Partnership's remaining aircraft joint investments generated $0.1 million of net
income during the six months June 30, 1995;
Marine vessel: The Partnership's share of marine vessel revenues and expenses
were $1.0 million and $1.1 million, respectively, for the six months ended June
30, 1996, compared to $3.1 million and $2.3 million, respectively, during the
same period of 1995. During 1995 and 1996, the Partnership owned a 50%
investment in a marine vessel that experienced lower daily rates during the six
months ended June 30, 1996, compared to the same period of 1995.
In addition, the Partnership had a 50% investment in a marine vessel that was
sold during the second quarter of 1995 for a gain of $0.5 million. This vessel
generated $0.4 million of net income during the second quarter of 1995. There
was no similar net income during the six months ended June 30, 1996;
Mobile offshore drilling unit: The Partnership's share of mobile offshore
drilling unit (rig) revenues and expenses were $0.7 million and $0.7 million,
respectively, for the six months ended June 30, 1996, compared to $0.8 million
and $0.7 million, respectively, during the same period of 1995. As of June 30,
1996, the Partnership owned a 55% investment in a rig. Net income generated from
the rig decreased slightly in the six months ended June 30, 1996 due to lower
lease rates compared to the prior year comparable quarter.
(F) Net Income
As a result of the foregoing, the Partnership's net income of $13.4 million for
the six months ended June 30, 1996, increased from net income of $3.4 million
during the same period in 1995. The Partnership's ability to operate and
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 the second quarter 1996 is not necessarily
indicative of future periods. During the six months ended June 30, 1996, the
Partnership distributed $9.4 million to the Unitholders, or $1.62 per Depositary
Unit, which included a special distribution of $4.4 million, or $0.75 per
depositary unit.
(II) FINANCIAL CONDITION - CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
The General Partner purchased the Partnership's 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, while the
Partnership's total outstanding indebtedness, currently $14.0 million, cannot be
increased. The Partnership relies on operating cash flow and proceeds from the
disposition of equipment to meet its operating obligations and to make cash
distributions to the Limited Partners.
For the six months ended June 30, 1996, the General Partner generated
sufficient operating cash flows to meet its operating obligations and to make
distributions to the partners.
Pursuant to the Limited Partnership Agreement, the Partnership ceased
during the third quarter of 1994 to reinvest in additional equipment. Equipment
sales now result in partial liquidation of the Partnership's portfolio, with
proceeds being used for payment of debt and distributions to partners. The
General Partner will pursue a strategy of selectively re-leasing equipment to
achieve competitive returns, or selling equipment that is underperforming or
whose operation becomes prohibitively expensive in the period prior to the final
liquidation of the Partnership.
On June 28, 1996, the Partnership made a $0.9 million debt payment on its
adjustable rate senior secured note agreement, with investment sales proceeds,
to reduce the outstanding debt obligation to $14.0 million. In the third
quarter, the Partnership intends to retire the remaining debt balance with
proceeds from the sales of equipment that occurred in July.
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 1996 beginning of the liquidation of the Partnership's portfolio, the
amount of net cash flows from operations will become progressively smaller as
assets are sold. Although operating distribution levels will be reduced,
significant asset sales may result in potential special distributions to
Unitholders.
<PAGE>
(III) DEPOSITARY UNITS
The General Partner delisted the Partnership's Depositary units from the
American Stock Exchange (AMEX) on April 8, 1996. The last day for trading on the
AMEX was March 22, 1996. For the past six years, the Partnership engaged in a
plan to purchase up to 250,000 Depositary Units. During the six months ended
June 30, 1996, the Partnership repurchased 24,800 Depositary Units at a cost of
$163,000. As of June 30, 1996, the Partnership had repurchased a total of
199,650 Depositary Units at a cost of $2.6 million.
(IV) TRENDS
The Partnership continues to pursue a strategy of selectively re-leasing
equipment to achieve competitive returns, or selling equipment that is
underperforming or whose operation becomes prohibitively expensive. During 1996,
marine container and refrigerated over-the-road trailer markets, oversupply
conditions, industry consolidation, and other factors are expected to result in
falling rates and lower returns. In the dry over-the-road trailer markets,
strong demand and back log of new equipment deliveries is expected to produce
high utilization and returns. The marine vessel and railcar markets may produce
increased rates as demand for equipment is increasing faster than new additions,
net of retirements. These different markets are expected to have individual
affects on the Partnership's ability to re-lease and achieve competitive returns
and to sell equipment.
With the 1996 beginning of the liquidation of the Partnership's portfolio,
the General Partner may choose to sell equipment rather than re-lease if market
conditions are optimal. As the Partnership sells equipment, the size of the
remaining equipment portfolio will become smaller, and in turn, the net cash
flows from operations, and therefore, distributions levels will be reduced. Cash
flows from operations will be used to pay loan principal on debt and pay
operating distributions to unitholders. Significant asset sales may result in
potential special distributions to Unitholders.
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLM EQUIPMENT GROWTH FUND
By: PLM Financial Services, Inc.
General Partner
Date: August 9, 1996 By: /s/ David J. Davis
------------------
David J. Davis
Vice President and
Corporate Controller
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
August 12, 1996
Securities and Exchange Commission
6432 General Green Way
Alexandria, VA 22312
Dear Sir or Madam:
The following 10-Q for PLM Equipment Growth Fund is being filed via EDGARLink.
Please call me at (415) 905-7211 if you have any questions or problems with this
filing. Thank you.
Sincerely,
/s/ Christopher Delyani
- ---------------------------
Christopher Delyani
Legal Secretary
</TABLE>
