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, 1999
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 800, SAN FRANCISCO, CA 94105-1301
Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (415) 974-1399
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ______
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
(in thousands of dollars, except unit amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------------------------------
ASSETS
<S> <C> <C>
Equipment held for operating lease, at cost $ 25,096 $ 26,113
Less accumulated depreciation (20,684) (20,862)
------------------------------------------
Net equipment 4,412 5,251
Cash and cash equivalents 5,830 3,289
Accounts receivable, net of allowance for doubtful accounts
of $33 in 1999 and $161 in 1998 348 305
Investments in unconsolidated special-purpose entities 2,014 4,149
Prepaid expenses and other assets 9 26
----------------------------------------
Total assets 12,613 $ 13,020
========================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 175 $ 131
Due to affiliates 39 525
Lessee deposits and reserve for repairs 35 37
----------------------------------------
Total liabilities 249 693
----------------------------------------
Partners' capital :
Limited partners (5,785,350 depositary units
as of June 30, 1999 and December 31, 1998) 12,364 12,327
General Partner -- --
----------------------------------------
Total partners' capital 12,364 12,327
----------------------------------------
Total liabilities and partners' capital $ 12,613 $ 13,020
========================================
</TABLE>
See accompanying notes to financial statements.
-1-
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
(in thousands of dollars, except weighted-average unit amounts)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
-------------------------------------------------------------------
REVENUES
<S> <C> <C> <C> <C>
Lease revenue $ 1,566 $ 1,839 $ 3,238 $ 3,808
Interest and other income 47 23 96 90
Net gain on disposition of equipment 51 145 140 220
------------------------------------------------------------------
Total revenues 1,664 2,007 3,474 4,118
------------------------------------------------------------------
EXPENSES
Depreciation 374 477 760 972
Repairs and maintenance 596 636 1,065 1,204
Management fees to affiliate 86 108 200 274
Insurance expense 8 (28) 17 (17)
General and administrative expenses to affiliates 67 146 144 290
Other general and administrative expenses 119 143 252 398
(Recovery of) provision for bad debt expense (18) 7 (121) (109)
------------------------------------------------------------------
Total expenses 1,232 1,489 2,317 3,012
------------------------------------------------------------------
Equity in net income of unconsolidated
special-purpose entities 2,654 180 2,696 135
------------------------------------------------------------------
Net income $ 3,086 $ 698 $ 3,853 $ 1,241
==================================================================
PARTNER'S NET INCOME
Limited partners $ 3,058 $ 661 $ 3,815 $ 1,147
General Partner 28 37 38 94
------------------------------------------------------------------
Total $ 3,086 $ 698 $ 3,853 $ 1,241
==================================================================
Net income per weighted-average depositary unit $ 0.53 $ 0.11 $ 0.66 $ 0.20
==================================================================
Cash distributions $ 832 $ 1,033 $ 1,863 $ 2,634
Special distributions 1,953 -- 1,953 3,483
-----------------------------------------------------------------------------------------------
Total distributions $ 2,785 $ 1,033 $ 3,816 $ 6,117
===============================================================================================
Per weighted-average depositary unit:
Cash distributions $ 0.14 $ 0.18 $ 0.32 $ 0.45
Special distributions 0.33 -- 0.33 0.60
-----------------------------------------------------------------------------------------------
Total distributions $ 0.47 $ 0.18 $ 0.65 $ 1.05
===============================================================================================
</TABLE>
See accompanying notes to financial statements.
-2-
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FROM THE PERIOD FROM DECEMBER 31 TO JUNE 30, 19999
(in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
------------------------------------------------------
<S> <C> <C> <C>
Partners' capital (deficit) as of December 31, 1997 $ 18,887 (189) 18,698
Net income 1,536 271 1,807
Cash distributions (4,648) (47) (4,695)
Special distributions (3,448) (35) (3,483)
Partners' capital as of December 31, 1998 12,327 -- 12,327
Net income 3,815 38 3,853
Cash distributions (1,844) (19) (1,863)
Special distributions (1,934) (19) (1,953)
-------------------------------------------------------------
Partners' capital as of June 30, 1999 $ 12,364 $ -- $ 12,364
=============================================================
</TABLE>
See accompanying notes to financial statements.
-3-
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1999 1998
---------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 3,853 $ 1,241
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 760 972
Net gain on disposition of equipment (140) (220)
Equity in net income from unconsolidated
special-purpose entities (2,696) (135)
Changes in operating assets and liabilities:
Accounts receivable, net (43) 127
Due from affiliate -- 353
Prepaid expenses and other assets 17 20
Accounts payable and accrued expenses 44 (254)
Due to affiliates (486) (32)
Lessee deposits and reserve for repairs (2) (10)
-------------------------------------
Net cash provided by operating activities 1,307 2,062
-------------------------------------
INVESTING ACTIVITIES
Payments for capital improvements (17) (102)
Liquidation distributions from unconsolidated
special-purpose entity 4,794 1,101
Distributions from unconsolidated special-purpose entities 37 391
Proceeds from disposition of equipment 236 884
-------------------------------------
Net cash provided by investing activities 5,050 2,274
-------------------------------------
FINANCING ACTIVITIES
Cash distributions paid to limited partners (1,844) (2,608)
Cash distributions paid to General Partner (19) (26)
Special distributions paid to limited partners (1,934) (3,448)
Special distributions paid to General Partner (19) (35)
-------------------------------------
Net cash used in financing activities (3,816) (6,117)
-------------------------------------
Net increase (decrease) in cash and cash equivalents 2,541 (1,781)
Cash and cash equivalents at beginning of period 3,289 4,585
-------------------------------------
Cash and cash equivalents at end of period $ 5,830 $ 2,804
=====================================
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
1. Opinion of Management
In the opinion of the management of PLM Financial Services, Inc. (FSI or
the General Partner), the accompanying unaudited financial statements
contain all adjustments necessary, consisting primarily of normal recurring
accruals, to present fairly the PLM Equipment Growth Fund's (the
Partnership's) financial position as of June 30, 1999 and December 31,
1998, the statements of income for the three and six months ended June 30,
1999 and 1998, the statements of changes in Partners' capital from December
31, 1997 to June 30, 1999, and the statements of cash flows for the six
months ended June 30, 1999 and 1998. Certain information and note
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted from the accompanying financial statements. For
further information, reference should be made to the financial statements
and notes thereto included in the Partnership's Annual Report on Form 10-K
for the year ended December 31, 1998, on file at the Securities and
Exchange Commission.
2. Schedule of Partnership Phases
The Partnership, in accordance with its limited partnership agreement,
entered its liquidation phase on January 1, 1998, and has commenced an
orderly liquidation of the Partnership assets. The Partnership will
terminate on December 31, 2006, unless terminated earlier upon the sale of
all equiment or by certain other events. The General Partner may no longer
reinvest cash flows and surplus funds in equipment. All future cash flows
and surplus funds, if any are to be used for distributions to partners,
except to the extent used to maintain reasonable reserves. During the
liquidation phase, the Partnership's assets will continue to be recorded at
the lower of the carrying amount or fair value less cost to sell.
3. Cash Distributions
Cash distributions are recorded when paid and may include amounts in excess
of net income that are considered to represent a return of capital. For the
six months ended June 30, 1999 and 1998, cash distributions totaled $1.9
million and $2.6 million, respectively. For the three months ended June 30,
1999 and 1998 cash distributions totaled $0.8 million and $1.0 million,
respectively. In addition, $2.0 million and $3.5 million in special
distributions were paid during the six months ended June 30, 1999 and 1998.
For the three months ended June 30, 1999 and 1998, special distributions
totaled $2.0 million and $0, respectively. During the six months ended June
30, 1999 and 1998, cash and special distributions to unitholders of $0 and
$4.9 million, respectively, were deemed to be a return of capital.
Cash distributions of $0.8 million relating to the results from the second
quarter of 1999 will be paid during the third quarter of 1999. In addition,
in August 1999, the Partnership will distribute a special distribution
totaling $4.1 million
4. Transactions with General Partner and Affiliates
The balance due to affiliates as of June 30, 1999, includes $39,000 due to
FSI and its affiliate for management fees. The balance due to affiliates as
of December 31, 1998 includes $39,000 due to FSI and its affiliate for
management fees and $486,000 due to affiliated unconsolidated special
purpose entities (USPEs).
-5-
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
4. Transactions with General Partner and Affiliates (continued)
The Partnership's proportional share of the affiliated expenses incurred by
the USPEs during 1999 and 1998 is listed in the following table (in
thousands of dollars):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees $ 41 $ 18 $ 46 $ 66
Data processing and administrative
expenses 13 13 25 27
Insurance expense 0 1 5 (7)
</TABLE>
5. Equipment
The components of owned equipment are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------------------------------
<S> <C> <C>
Railcars $ 21,378 $ 21,635
Marine containers 1,927 2,039
Trailers 1,791 2,439
----------------------------------------------------------------------
25,096 26,113
Less accumulated depreciation (20,684) (20,862)
------------------------------------
Net equipment $ 4,412 $ 5,251
====================================
</TABLE>
As of June 30, 1999, all equipment in the Partnership's owned equipment
portfolio was on lease or operating in PLM-affiliated short-term trailer
rental facilities, except for 20 marine containers and 57 railcars with an
aggregate net book value of $1.0 million. As of December 31, 1998, all
equipment in the Partnership's owned equipment portfolio was on lease or
operating in PLM-affiliated short-term trailer rental facilities, except
for 23 marine containers and 5 railcars with an aggregate net book value of
$23,000.
Capital improvements to the Partnership's equipment of $17,000 and $0.1
million were made during the six months ended June 30, 1999 and June 30,
1998, respectively.
During the six months ended June 30, 1999, the Partnership sold or disposed
of marine containers, railcars, and trailers, with an aggregate net book
value of $0.1 million, for proceeds of $0.2 million.
During the six months ended June 30, 1998, the Partnership sold or disposed
of marine containers, railcars, and trailers, with an aggregate net book
value of $0.7 million, for proceeds of $0.9 million.
-6-
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL
STATEMENTS JUNE 30, 1999
6. Investments in Unconsolidated Special-Purpose Entities
The net investments in unconsolidated special-purpose entities include the
following jointly-owned equipment (and related assets and liabilities) (in
thousands of dollars):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------------------------------------
<S> <C> <C>
50% interest in an entity owning a Product Tanker $ 1,363 $ 1,585
50% interest in an entity owning a Boeing 737-200 601 498
12% interest in an entity that owned a
Boeing 767-200 ER 48 2,064
18% interest in an entity that owned a Boeing 727-200 2 2
Net investments $ 2,014 $ 4,149
===========================================
</TABLE>
The Boeing 737-200 aircraft in which the Partnership owned a 50% interest
was off lease as of June 30, 1999 and December 31, 1998. During the quarter
ended June 30, 1999, the Partnership's interest in the Boeing 767-200 ER
was sold for proceeds of $4.8 million.
7. Operating Segments
The Partnership operates or operated primarily in four different segments:
railcar leasing, trailer leasing, marine container leasing, and aircraft
leasing. Each equipment leasing segment engages in short-term and mid-term
operating leases to a variety of customers. The following tables present a
summary of the operating segments (in thousands of dollars):
<TABLE>
<CAPTION>
Marine
Railcar Trailer Container Aircraft All
For the quarter ended June 30, 1999 Leasing Leasing Leasing Leasing Other<F1>1 Total
- ----------------------------------- ------- ------- -----
REVENUES
<S> <C> <C> <C> <C> <C> <C>
Lease revenue $ 1,407 $ 120 $ 39 $ -- $ -- $ 1,566
Interest income and other -- -- 5 -- 42 47
Net gain(loss) on disposition
of equipment 23 25 (3) -- 6 51
----------------------------------------------------------------------------------
Total revenues 1,430 145 41 -- 48 1,664
COSTS AND EXPENSES
Operations support 567 33 -- -- 4 604
Depreciation 324 25 25 -- -- 374
General and administrative --
expenses 51 31 -- 104 186
Management fees -- -- -- -- 86 86
(Recovery of) provision for bad deb (23) 5 -- (18)
Total costs and expenses 919 94 25 -- 194 1,232
Equity in net income of USPEs -- -- -- 2,773 (119) 2,654
--------------------------------------------------------------------------------
Net income (loss) $ 511 $ 51 $ 16 $2,773 $ (265) $ 3,086
================================================================================
Total assets as of June 30, 1999 $ 3,439 $ 475 $ 498 $ 711 $ 7,490 $ 12,613
=====================================================================================
- -------------------------
<FN>
<F1>1 Includes revenues and costs not identifiable to a particular segment
such as interest expense, certain interest income and other, operations
support and general and administrative expenses. Also includes income from
an investment in an entity owning a marine vessel.
</FN>
</TABLE>
-7-
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
7. Operating Segments (continued)
<TABLE>
<CAPTION>
Marine
Railcar Trailer Container Aircraft All
For the quarter ended June 30, 1998 Leasing Leasing Leasing Leasing Other<F1>1 Total
- ----------------------------------- ------- ------- ------- -------- ----- -----
REVENUES
<S> <C> <C> <C> <C> <C> <C>
Lease revenue $ 1,472 $ 345 $ 22 $ -- $ -- $ 1,839
Interest income and other -- -- -- -- 23 23
Net gain on disposition
of equipment 15 106 8 16 -- 145
-----------------------------------------------------------------------------------
Total revenues 1,487 451 30 16 23 2,007
COSTS AND EXPENSES
Operations support 533 107 1 -- (33) 608
Depreciation 337 95 45 -- -- 477
General and administrative
expenses 70 92 -- 3 124 289
Management fees -- -- -- -- 108 108
(Recovery of) provision for bad debts (14) 20 21 -- (20) 7
Total costs and expenses 926 314 67 3 179 1,489
Equity in net income (loss) of USPE -- -- -- (103) 283 180
Net income (loss) $ 561 $ 137 $ (37) $ (90) $ 127 $ 698
=================================================================================
Total assets as of June 30, 1998 $ 4,847 $ 881 $ 855 $ 2,767 $ 5,484 $ 14,834
===================================================================================
- --------
<FN>
<F1> 1 Includes revenues and costs not identifiable to a particular segment
such as interest expense, certain interest income and other, operations
support and general and administrative expenses. Also includes income from
an investment in an entity owning a marine vessel.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Marine
Railcar Trailer Container Aircraft All
For the six months ended June 30, 1999Leasing Leasing Leasing Leasing Other<F1>1 Total
------- ------- ------- ------- --------- ----------
REVENUES
<S> <C> <C> <C> <C> <C> <C>
Lease revenue $ 2,897 $ 253 $ 88 $ -- $ -- $ 3,238
Interest income and other -- -- 5 -- 91 96
Net gain on disposition --
of equipment 52 84 (2) -- 6 140
---------------------------------------------------------------------------------------
Total revenues 2,949 337 91 -- 97 3,474
COST AND EXPENSE
Operations support 1,008 64 1 -- 9 1,082
Depreciation 650 60 50 -- -- 760
General and administrative --
expenses 96 65 1 -- 234 396
Management fees -- -- -- -- 200 200
(Recovery of) provision for bad debts (124) 6 -- -- (3) (121)
Total costs and expenses 1,630 195 52 -- 440 2,317
Equity in net income of USPEs -- -- -- 2,704 (8) 2,696
--------------------------------------------------------------------------------------
Net income (loss) $ 1,319 $ 142 $ 39 $ 2,704 $ (351) $ 3,853
======================================================================================
Total assets as of June 30, 1999 $ 3,439 $ 475 $ 498 $ 711 $ 7,490 $ 12,613
======================================================================================
- --------
<FN>
<F1> 1 Includes revenues and costs not identifiable to a particular segment
such as interest expense, certain interest income and other, operations
support and general and administrative expenses. Also includes income from
an investment in an entity owning a marine vessel.
</FN>
</TABLE>
-9-
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
7. Operating Segments (continued)
<TABLE>
<CAPTION>
Marine
Railcar Trailer Container Aircraft All
For the six months ended June 30, 1999 Leasing Leasing Leasing Leasing Other<F1> Total
------ ------ -------- -------- ------ -----
REVENUES
<S> <C> <C> <C> <C> <C> <C>
Lease revenue $ 2,978 $ 726 $ 104 $ -- $ -- $ 3,808
Interest income and other -- -- -- -- 90 90
Net gain (loss) on disposition
of equipment 51 191 10 (32) -- 220
--------------------------------------------------------------------------------
Total revenues 3,029 917 114 (32) 90 4,118
COSTS AND EXPENSES
Operations support 993 220 2 -- (28) 1,187
Depreciation 668 210 94 -- -- 972
General and administrative
expenses 126 198 2 7 355 688
Management fees -- -- -- 274 274
(Provision for) recovery of bad debts (124) 15 -- -- -- (109)
Total costs and expenses 1,663 643 98 7 601 3,012
Equity in net income (loss) of USPEs -- -- -- (182) 317 135
Net income (loss) $ 1,366 $ 274 $ 16 $ (221) $ (194) $ 1,241
===================================================================================
Total assets as of June 30, 1998 $ 4,847 $ 881 $ 855 $ 2,767 $ 5,484 $ 14,834
===================================================================================
<FN>
--------
<F1>1 Includes revenues and costs not identifiable to a particular
segment such as interest expense, certain interest income and other,
operations support and general and administrative expenses. Also includes
income from an investment in an entity owning a marine vessel.
</FN>
</TABLE>
8. Net Income Per Weighted-Average Partnership Unit
Net income per weighted-average Partnership unit was computed by dividing
net income attributable to limited partners by the weighted-average number
of Partnership units deemed outstanding during the period. The
weighted-average number of Partnership units deemed outstanding during the
three and six months ended June 30, 1999 and 1998 was 5,785,350.
9. Contingencies
The Partnership, together with affiliates, has initiated litigation in
various official forums in India against a defaulting Indian airline lessee
to repossess Partnership property and to recover damages for failure to pay
rent and failure to maintain such property in accordance with relevant
lease contracts. The Partnership has repossessed all of its property
previously leased to such airline, and the airline has ceased operations.
In response to the Partnership's collection efforts, the airline filed
counterclaims against the Partnership in excess of the Partnership's claims
against the airline. The General Partner believes that the airline's
counterclaims are completely without merit and the General Partner will
vigorously defend against such counterclaims. The General Partner believes
an unfavorable outcome from the counterclaims is remote.
-10-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(I) RESULTS OF OPERATIONS
Comparison of PLM Equipment Growth Fund's (the Partnership's) Operating Results
for the Three Months Ended June 30, 1999 and 1998
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance and
asset-specific insurance expenses) on owned equipment decreased during the
quarter ended June 30, 1999, compared to the same period of 1998. Gains or
losses from the sale of equipment, interest and other income and certain
expenses such as depreciation and general and administrative expenses relating
to the operating segments (see Note 7 to the financial statements), are not
included in the owned equipment operation discussion because they are indirect
in nature and not a result of operations but the result of owning a portfolio of
equipment. The following table presents lease revenues less direct expenses by
owned equipment type (in thousands of dollars):
For the Three Months
Ended June 30,
1999 1998
---------------------------
Railcars $ 840 $ 939
Trailers 87 238
Marine containers 39 22
Railcars : Railcar lease revenues and direct expenses were $1.4 million and $0.6
million, respectively, for the quarter ended June 30, 1999, compared to $1.5
million and $0.6 million, respectively, for the same period of 1998. Railcar
revenues decreased due to the sale of railcars during the second half of 1998
and the first six months of 1999.
Trailers: Trailer lease revenues and direct expenses were $0.1 million and
$33,000, respectively, for the quarter ended June 30, 1999, compared to $0.3
million and $0.1 million, respectively, for the same period of 1998. The number
of trailers owned by the Partnership has been declining over the past twelve
months due to sales and dispositions. The result of this declining fleet has
been a decrease in trailer contribution.
Marine containers: Marine container lease revenues and direct expenses were
$39,000 and $0, respectively, for the quarter ended June 30, 1999, compared to
$23,000 and $1,000, respectively, for the same period of 1998. The increase in
revenues is due to higher utilization revenue of $33,000, offset partially by
sales and dispositions which reduced revenues by $17,000.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $0.6 million for the quarter ended June 30, 1999
decreased from $0.8 million for the same period of 1998. The decrease is due
primarily to a $0.1 million decrease in depreciation expenses from 1998 levels
resulting from the sale of certain assets during 1999 and 1998, and lower
administrative expense of $0.1 million, related to the Partnership's smaller
portfolio.
(C) Net Gain on Disposition of Owned Equipment
The net gain on disposition of owned equipment for the second quarter of 1999
totaled $51,000, and resulted from the sale of marine containers, railcars, and
trailers, with an aggregate net book value of $31,000, for aggregate proceeds of
$82,000. For the second quarter of 1998, net gain on sales totaled $0.1 million,
and resulted from the sale of marine containers, railcars, and trailers, with an
aggregate net book value of $0.4 million, for aggregate proceeds of $0.5
million.
-11-
<PAGE>
(D) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
For the Three Months
Ended June 30,
1999 1998
------------------------------
Aircraft $ 2,773 $ (134)
Marine vessels (119) 314
Equity in net income (loss) $ 2,654 $ 180
===============================
Aircraft: As of June 30, 1999, the Partnership had an interest in one entity
that owned a one commercial aircraft. The Partnership's share of aircraft
revenues and expenses was $28,000 and $0.2 million, respectively, for the
quarter ended June 30, 1999, compared to $0.1 million and $0.2 million,
respectively, for the same period of 1998. The Partnership sold its 12% interest
in an entity that owned an aircraft during the second quarter of 1999, and
recognized a gain on sale of $3.0 million. The Partnership's 50% interest in an
entity that owns a commercial aircraft was off lease during the second quarter
of 1999 and 1998. Direct expenses in this entity decreased due to decreased
repairs on this aircraft.
Marine vessel: As of June 30, 1999 and 1998, the Partnership had an interest in
an entity that owns a marine vessel. The Partnership's share of marine vessel
revenues and expenses was $0.4 million and $0.5 million, respectively, for the
quarter ended June 30, 1999, compared to $0.7 million and $0.4 million,
respectively, for the same period of 1998. The decrease in contribution in the
second quarter of 1999 resulted from the vessel being off-lease in the second
quarter of 1999, as the vessel had regularly scheduled maintenance performed.
(E) Net Income
As a result of the foregoing, the Partnership's net income of $3.1 million for
the second quarter of 1999 compared to net income of $0.7 million during the
same period of 1998. The Partnership's ability to operate and liquidate assets,
secure leases, and re-lease those assets whose leases expire is subject to many
factors, and the Partnership's performance in the second quarter of 1999 is not
necessarily indicative of future periods. In the second quarter of 1999, the
Partnership distributed $0.8 million to the unitholders, or $0.14 per
weighted-average depositary unit. Also in the second quarter of 1999, a special
distribution of $2.0 million was distributed to the unitholders, or $0.33 per
weighted-average depositary unit.
Comparison of the Partnership's Operating Results for the Six Months Ended June
30, 1999 and 1998
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance and
asset-specific insurance expenses) on owned equipment decreased during the six
months ended June 30, 1999, compared to the same period of 1998. Gains or losses
from the sale of equipment, interest and other income and certain expenses such
as depreciation and general and administrative expenses relating to the
operating segments (see Note 7 to the financial statements), are not included in
the owned equipment operation discussion because they are indirect in nature and
not a result of operations but the result of owning a portfolio of equipment.
The following table presents lease revenues less direct expenses by owned
equipment type (in thousands of dollars):
For the Six Months
Ended June 30,
1999 1998
------------------------------
Railcars $ 1,889 $ 1,986
Trailers 189 506
Marine containers 87 102
Railcars: Railcar lease revenues and direct expenses were $2.9 million and $1.0
million, respectively, for the six months ended June 30, 1999, compared to $3.0
million and $1.0 million, respectively, during the same period of 1998. Railcar
revenues decreased due to the sale of railcars during the second half of 1998
and the first six months of 1999.
Trailers: Trailer lease revenues and direct expenses were $0.3 million and $0.1
million, respectively, for the six months ended June 30, 1999, compared to $0.7
million and $0.2 million, respectively, during the same period of 1998. The
number of trailers owned by the Partnership has been declining over the past
twelve months due to sales and dispositions. The result of this declining fleet
has been a decrease in trailer contribution.
Marine containers: Marine container lease revenues and direct expenses were $0.1
million and $1,000, respectively, for the six months ended June 30, 1999,
compared to $0.1 million and $2,000, respectively, during the same period of
1998. 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 been a decrease in marine container contribution.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $1.2 million for the six months ended June 30, 1999
decreased from $1.8 million for the same period in 1998. Significant variances
are explained as follows:
(1) A $0.3 million decrease in general and administrative expense due to the
lower overall size of the Parntership which has led to reduced data processing,
travel, and cost for professional services.
(2) A $0.2 million decrease in depreciation expenses from 1998 levels reflecting
the sale of certain assets during 1999 and during 1998.
(3) A $0.1 million decrease in management fee expense due to reduced cash flows
from operations in 1999, compared to the same period in 1998.
(C) Net Gain on Disposition of Owned Equipment
Net gain on disposition of equipment for the six months ended June 30, 1999
totaled $0.1 million, and resulted from the sale of marine containers, railcars,
and trailers with a net book value of $0.1 million, for proceeds of $0.2
million. For the six months ended June 30, 1998, the net gain on sale totaled
$0.2 million, and resulted from the sale of marine containers, railcars, and
trailers, with a net book value of $0.7 million, for proceeds of $0.9 million.
(D) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
For the Six Months
Ended June 30,
1999 1998
-------------------------------
Aircraft $ 2,704 $ (213)
Marine vessels (8) 348
Equity in net income (loss) $ 2,696 $ 135
=========================================
-12-
<PAGE>
Marine vessel: As of June 30, 1999 and 1998, the Partnership had an interest in
an entity that owns a marine vessel. The Partnership's share of marine vessel
revenues and expenses was $1.1 million and $1.1 million, respectively, for the
six months ended June 30, 1999, compared to $1.3 million and $1.0 million,
respectively, during the same period of 1998. . The decrease in contribution for
the six months ended June 30, 1999 resulted from the vessel being off-lease in
the second quarter of 1999, as the vessel had regularly scheduled maintenance
performed.
Aircraft: As of June 30, 1999, the Partnership had an interest in one entity
that owned one commercial aircraft. The Partnership's share of aircraft revenues
and expenses was $0.2 million and $0.5 million, respectively, for the six months
ended June 30, 1999, compared to $0.3 million and $0.5 million, respectively,
during the same period of 1998. Revenues were lower in 1999 by $0.1 million due
to the plane being off-lease prior to being sold. The Partnership sold its 12%
interest in an entity that owned an aircraft during the second quarter of 1999,
and recognized a gain on sale of $3.0 million. The Partnership's 50% interest in
an entity that owns a commercial aircraft was off lease during the first six
months of 1999 and 1998. Direct expenses in this entity decreased due to
decreased repairs on this aircraft.
(E) Net Income
As a result of the foregoing, the Partnership's net income of $3.9 million for
the six months ended June 30, 1999 compared to net income of $1.2 million during
the same period in 1998. The Partnership's ability to operate and liquidate
assets, secure leases, and re-lease those assets whose leases expire is subject
to many factors, and the Partnership's performance in the first six months of
1999 is not necessarily indicative of future periods. During the six months
ended June 30, 1999, the Partnership distributed $3.8 million to the
unitholders, or $0.65 per weighted-average depositary unit, including a special
distribution of $0.33 per weighted-average depositary unit.
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
For the six months ended June 30, 1999, the Partnership generated $1.3 million
in operating cash (net cash provided by operating activities, plus
non-liquidating distributions from unconsolidated special-purpose entities) to
meet its operating obligations and maintain the current level of distributions
(total for six months ended June 30, 1999 of approximately $3.8 million, which
includes a special distribution of $2.0 million) to the partners, but used
undistributed available cash from prior periods and asset sales proceeds of
approximately $2.5 million.
During the six months ended June 30, 1999, the General Partner sold equipment on
behalf of the Partnership and realized proceeds of approximately $0.2 million.
The General Partner has not planned any expenditures, nor is it aware of any
contingencies that would cause the Partnership to require any additional capital
to that mentioned above.
The Partnership is in its active liquidation phase. As a result, the size of the
Partnership's remaining equipment portfolio and, in turn, the amount of net cash
flows from operations will continue to become progressively smaller as assets
are sold. Although distribution levels may be reduced, significant asset sales
may result in potential special distributions to the partners.
The amounts reflected for assets and liabilities of the Partnership have not
been adjusted to reflect liquidation values. The equipment portfolio that is
actively being marketed for sale by the General Partner continues to be carried
at the lower of depreciated cost or fair value less cost of disposal. Although
the General Partner estimates that there will be distributions to the
Partnership after final disposal of assets and settlement of liabilities, the
amounts cannot be accurately determined prior to actual disposal of the
equipment.
(III) YEAR 2000 COMPLIANCE
It is possible that the General Partner's currently installed computer systems,
software products, and other business systems, or those of the Partnership's
vendors, service providers, and customers, working either alone or in
conjunction with other software or systems, may not accept input of, store,
manipulate, and output dates on or after January 1, 2000 without error or
interruption, a possibility commonly known as the "Year 2000" or "Y2K" problem.
As the Partnership relies substantially on the General Partner's software
systems, applications and control devices in operating and monitoring
significant aspects of its business, any Year 2000 problem suffered by the
General Partner could have a material adverse effect on the Partnership's
business, financial condition and results of operations.
The General Partner has established a special Year 2000 oversight committee to
review the impact of Year 2000 issues on its business systems in order to
determine whether such systems will retain functionality after December 31,
1999. As of June 30, 1999, the General Partner has completed Inventory,
Assessment, Remediation and Testing Stages of its Year 2000 review of its core
business information systems. Specifically, the General Partner (a) has
integrated Year 2000-compliant programming code into its existing internally
customized and internally developed transaction processing software systems and
(b) the General Partner's accounting and asset management software systems have
been made Year 2000 compliant. In addition, numerous other software systems
provided by vendors and service providers have been replaced with systems
represented by the vendor or service provider to be Year 2000 functional. These
systems will be fully tested September by 30, 1999 and are expected to be
compliant.
As of June 30, 1999, the costs incurred and allocated to the Fund to become Year
2000 compliant have not been material and does not anticipate any additional
Year 2000-compliant expenditures.
Some risks associated with the Year 2000 problem are beyond the ability of the
Partnership or General Partner to control, including the extent to which third
parties can address the Year 2000 problem. The General Partner is communicating
with vendors, services providers, and customers in order to assess the Year 2000
readiness of such parties and the extent to which the Partnership is vulnerable
to any third-party Year 2000 issues. As part of this process, vendors and
service providers were ranked in terms of the relative importance of the service
or product provided. All service providers and vendors who were identified as
medium to high relative importance, were surveyed to determine Year 2000 status.
The General Partner has received satisfactory response to Year 2000 readiness
inquiries from surveyed service providers and vendors.
It is possible that certain of the Partnership's equipment lease portfolio may
not be Year 2000 compliant. The General Partner has contacted equipment
manufacturers of the portion of the Partnership's leased equipment portfolio
identified as date sensitive to assure Year 2000 compliance or to develop
remediation strategies. The Partnership does not expect that non-Year 2000
compliance of its leased equipment portfolio will have an adverse material
impact on its financial statements. The General Partner has surveyed the
majority of its Lessees and the majority of those surveyed have responded
satisfactorily to Year 2000 readiness inquiries.
There can be no assurance that the software systems of such parties will be
converted or made Year 2000 compliant in a timely manner. Failure by the General
Partner or such other parties to make their respective systems Year 2000
compliant could have a material adverse effect on the business, financial
position, and results of operations of the Partnership. The General Partner has
made and will continue an ongoing effort to recognize and evaluate potential
exposure relating to third-party Year 2000 noncompliance. The General Partner
will implement a contingency plan if the General Partner determines that
third-party noncompliance would have a material adverse effect on the
Partnership's business, financial position, or results of operation.
The General Partner is currently developing a contingency plan to address the
possible failure of any systems or vendors or service providers due to Year 2000
problems. For the purpose of such contingency planning, a reasonably likely
worst case scenario primarily anticipates an inability to access systems and
data on a temporary basis resulting in possible delay in reconciliation of funds
received or payment of monies owed. The General Partner is evaluating whether
there are additional scenarios which have not been identified. Contingency
planning will encompass strategies up to and including manual processes. The
General Partner anticipates that these plans will be completed by September 30,
1999.
-13-
<PAGE>
(IV) OUTLOOK FOR THE FUTURE
Since the Partnership is in its active liquidation phase, the General Partner is
seeking to selectively re-lease or sell assets as the existing leases expire.
Sale decisions will cause the operating performance of the Partnership to
decline over the remainder of its life. Throughout the remaining life of the
Partnership, the Partnership may periodically make special distributions to the
partners as asset sales are completed.
Several factors may affect the Partnership's operating performance in 1999 and
beyond, including changes in the markets for the Partnership's equipment and
changes in the regulatory environment in which that equipment operates.
Liquidation of Partnership equipment and investments in USPEs represents a
reduction in the size of the equipment portfolio and may result in a reduction
of contribution to the Partnership. Other factors affecting the Partnership's
contribution in 1999 and beyond includes:
1. The Partnership's remaining aircraft which, it jointly owns with an
affiliated Partnership is currently off-lease. The plane is off-lease due to
extensive repairs required upon coming back from a prior lessee and will remain
off-lease until it is sold.
2. Railcar loadings in North America continued to be high, however a softening
in the market is expected in the second half of 1999, which may lead to lower
utilization and lower contribution to the Partnership.
3. The current market rate for tanker vessels is relatively low. Demand in 1999
has shown some signs of recovering to previous levels, however, rate recovery
may take two to three years. Scrapping of older vessels is expected as
regulations restrict trading areas for such tonnage. The combination of
scrapping and low rate levels should bring supply back in balance with demand
over the next three years.
The ability of the Partnership to realize acceptable lease rates on its
equipment in the different equipment markets is contingent on many factors, such
as specific market conditions and economic activity, technological obsolescence,
and government or other regulations. The unpredictability of 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 continually monitors both the
equipment markets and the performance of the Partnership's equipment in these
markets. The General Partner may make an evaluation to reduce the Partnership's
exposure to equipment markets in which it determines that it cannot operate
equipment and achieve acceptable rates of return.
(V) FORWARD-LOOKING INFORMATION
Except for historical information contained herein, the discussion in this Form
10-Q contains forward-looking statements that involve risks and uncertainties,
such as statements of the Partnership's plans, objectives, expectations, and
intentions. The cautionary statements made in this Form 10-Q should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-Q. The Partnership's actual results could differ materially from
those discussed here.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposure is that of currency devaluation
risk. During the six months ended June 30, 1999, 86% of the Partnership's total
lease revenues from wholly- and partially-owned equiment came from non-United
States domiciled lessees. Most of the leases require payment in the United
States (U.S.) currency. If these lessees currency devalues against the U.S.
dollar, the lessees could potentially encounter difficulty in making the U.S.
dollar denominated lease payments.
-14-
<PAGE>
PART II -- OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
-15-
<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: July 30, 1998 By: /s/ Richard K Brock
----------------------------------
Richard K Brock
Vice President and
Corporate Controller
-16-
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,830
<SECURITIES> 0
<RECEIVABLES> 381
<ALLOWANCES> 33
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 25,096
<DEPRECIATION> (20,684)
<TOTAL-ASSETS> 12,613
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0
0
<COMMON> 0
<OTHER-SE> 249
<TOTAL-LIABILITY-AND-EQUITY> 12,613
<SALES> 0
<TOTAL-REVENUES> 3,474
<CGS> 0
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<OTHER-EXPENSES> 2,438
<LOSS-PROVISION> (121)
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