UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1994 Commission File Number
33-32258
PLM EQUIPMENT GROWTH FUND II
(Exact name of registrant as specified in its charter)
California 94-3041013
(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 executive offices) (Zip code)
Registrant's telephone number, including (415) 974-1399
area code
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
Number of units outstanding of each of the issuer's classes of
partnership units, as of the latest practicable date:
Class Outstanding at May 13, 1994
Limited Partnership Depositary Units 7,492,905
General Partnership Units: 1
<PAGE>
<TABLE>
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
BALANCE SHEETS
ASSETS
<CAPTION>
March 31, December 31,
1994 1993
<S> <C> <C>
Equipment held for operating leases $147,312,683 $149,450,893
Less accumulated depreciation (83,741,066) (83,034,823)
Net equipment 63,571,617 66,416,070
Cash and cash equivalents 8,032,903 5,996,067
Restricted cash 7,874,343 8,177,816
Accounts receivable, less allowance
for doubtful accounts of $262,853
in 1994 and $234,955 in 1993 2,185,435 2,763,109
Deferred charges, net of accumulated
amortization of $1,898,556 in 1994
and $1,855,142 in 1993 687,032 489,018
Prepaid expenses and other assets 333,471 363,629
Total assets $ 82,684,801 $ 84,205,709
</TABLE>
<TABLE>
LIABILITIES AND PARTNERS' CAPITAL
<CAPTION>
March 31, December 31,
1994 1993
<S> <C> <C>
Liabilities:
Accounts payable and accrued expenses $ 1,079,052 $ 1,773,154
Due to affiliates 256,238 354,471
Notes payable 35,000,000 35,000,000
Prepaid deposits and reserve
for repairs 5,876,516 4,216,425
Total Liabilities 42,211,806 41,344,050
Partners' capital (deficit):
Limited partners (7,492,905
Depositary Units, including
1,150 Depositary Units held
in the Treasury) at March 31,
1994 and December 31, 1993 41,505,480 43,894,144
General Partner (1,032,485) (1,032,485)
Total partners' capital 40,472,995 42,861,659
Total liabilities and
partners' $ 82,684,801 $ 84,205,709
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
STATEMENTS OF INCOME
<CAPTION>
For the three months ended
March 31,
1994 1993
<S> <C> <C>
Revenues:
Lease revenue $ 6,168,721 $ 7,697,451
Interest and other income 112,749 43,523
Net gain on disposition
of equipment 581,578 6,848,250
Total revenues 6,863,048 14,589,224
Expenses:
Depreciation and amortization 2,757,098 3,562,305
Management fees to affiliate 299,215 384,872
Repairs and maintenance 1,321,252 968,439
Interest expense 549,670 515,078
Insurance expense to affiliate (63,393) 335,130
Other insurance expense 55,184 210,541
Marine equipment operating
expenses 791,258 1,779,074
General and administrative
expenses to affiliates 179,769 159,947
Other general and
administrative expenses 206,750 252,743
Total expenses 6,096,803 8,168,129
Net income 766,245 $ 6,421,095
Partners' share of net income:
Limited Partners $ 608,499 $ 6,100,040
General Partner 157,746 321,055
Total $ 766,245 $ 6,421,095
Net income per Depositary Unit
(7,492,905 Units, including
1,150 Units held in Treasury
at March 31, 1994 and 1993; $ 0.08 $ 0.81
Cash Distributions $ 3,154,909 $ 3,158,642
Cash distributions per
Depositary Unit $ 0.40 $ 0.40
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
<CAPTION>
For the three months Ended
March 31,
1994 1993
<S> <C> <C>
Cash flows from operating
activities:
Net income $ 766,245 $ 6,421,095
Adjustments to reconcile net
income to net cash provided by
operating activities:
Net gain on disposition
of equipment (581,578) (6,933,250)
Depreciation and amortization 2,757,098 3,562,305
(Increase) decrease
in restricted cash 303,473 166,461
Decrease (increase) in accounts
receivable, net 577,674 (1,026,861)
(Decrease) increase in
due to affiliates (98,233) 54,277
Decrease in prepaid expenses
and other assets 30,158 68,726
Decrease in insurance
reimbursement receivable -- 2,254,067
(Decrease) increase in accounts
payable and accrued expenses (694,102) 577,406
Increase in prepaid deposits
and reserve for repairs 1,660,091 453,411
Net cash provided by
operating activities 4,720,826 5,597,637
Cash flows from investing activities:
Proceeds from disposition of
equipment 1,685,537 12,239,713
Payments of acquisition
fees to affiliate (22,528) (7,380)
Payments for purchases of equipment (950,662) (178,941)
Payments for equipment acquisition
deposits -- (50,000)
Increase in restricted cash -- (11,159,037)
Payments of lease
negotiation fees to affiliate (5,006) (3,987)
Net cash provided by
investing activities 707,341 840,368
Cash flows from financing activities:
Principal payments on notes payable -- (3,217,985)
Cash distributions paid to partners (3,154,909) (3,158,642)
Payments of debt placement fees (236,422) --
Repurchase of Depositary Units -- (70,035)
Net cash used in
financing activities (3,391,331) (6,446,662)
Net increase (decrease) in
cash and cash equivalents 2,036,836 (8,657)
Cash and cash equivalents at
beginning of period 5,996,067 2,225,424
Cash and cash equivalents at
end of period $ 8,032,903 $ 2,216,767
Supplemental information:
Interest paid $ 549,670 $ 502,449
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
March 31, 1994
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 II (the "Partnership") as of
March 31, 1994, the statements of operations and cash flows for the
three months ended March 31, 1994 and 1993. 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, 1993, on file at the Securities and Exchange
Commission.
2. Reclassification
Certain amounts in the 1994 financial statements have been
reclassified to conform with the 1994 presentation. Transportation
Equipment held for operating leases at March 31, 1994 and December
31, 1993 includes equipment previously reported as held for sale.
3. Cash Distributions
Cash distributions are recorded when paid and totaled $3,154,909
for the three months ended March 31, 1994.
Cash distributions to investors in excess of net income are
considered to represent a return of capital. Cash distributions to
Limited Partners of $2,388,664 and $0 for the three months ended
March 31, 1994 and 1993, respectively, were deemed to be a return
of capital.
Cash distributions of $2,997,162 ($0.40 per Depositary Unit) were
declared on March 16, 1994, and are to be paid on May 16, 1994, to
the Unitholders of record as of March 31, 1994.
4. Equipment
Equipment held for operating leases is stated at cost. As of March
31, 1994, the General Partner has reclassified assets held for sale
to equipment held for operating lease, unless the particular asset
is subject to a pending contract for sale.
The components of equipment are as follows:
March 31, December 31,
1994 1993
Equipment held for operating
leases:
Rail equipment $ 19,800,324 $ 19,800,324
Marine containers 17,985,580 17,888,668
Marine vessels 29,461,419 29,461,419
Aircraft 50,388,667 49,938,667
Trailers and tractors 13,363,582 16,048,704
Mobile offshore drilling unit 16,313,111 16,313,111
147,312,683 149,450,893
Less accumulated depreciation (83,741,066) (83,034,823)
Net equipment $ 63,571,617 $ 66,416,070
As of March 31, 1994, all equipment in the Partnership portfolio
was either operating in PLM affiliated short-term trailer rental
facilities or on lease, except 73 marine containers and seven
railcars; as of December 31, 1993, 73 marine containers and three
railcars were off-lease. The aggregate carrying value of equipment
off-lease was $221,319 and $171,641 at March 31, 1994 and December
31, 1993, respectively.
During the three months ended March 31, 1994, the Partnership sold
or disposed of 95 marine containers and 261 trailers, with an
aggregate net book value of approximately $1.1 million, for
aggregate proceeds of approximately $1.7 million. For the three
months ended March 31, 1993, the Partnership sold or disposed of 49
marine containers, two marine vessels, six tractors and eight
trailers, with an aggregate net book value of approximately $2.9
million and drydock reserves of approximately $0.7 million, for
aggregate proceeds of approximately $6.8 million. The Partnership
also sold four marine containers and 584 railcars, with an
aggregate carrying value of approximately $3.1 million for
aggregate proceeds of approximately $5.4 million.
Between January 1, 1994 and March 31, 1994, the Partnership
purchased 1,147 containers at a cost of $500,637 and paid
acquisition and lease negotiation fees of $22,528 to PLM
Transportation Equipment Corporation ("TEC") a wholly-owned
subsidiary of the General Partner.
5. Notes Payable
On March 30, 1994, the Partnership completed a refinancing of its
$35 million bank loan that was due on September 30, 1995. Due to
the Easter banking holidays in the bank's home country, the funds
to repay the bank loan were retained by a financial intermediary
and were forwarded on April 6, 1995, to complete the refinancing
transaction.
The new $35,000,000 loan facility is unsecured and non-recourse,
limits additional borrowings and specifies covenants related to
collateral coverage, fixed charge coverage and ratios for market
value and composition of the equipment owned by the Partnership.
The loan facility bears interest at LIBOR + 1.55% per annum (5.49%
at March 31, 1994) and is payable quarterly in arrears. Principal
is payable in annual installments of $4 million on March 31, 1996
and 1997, $9 million on March 31, 1998 and 1999, and a final
payment of $9 million on March 31, 2000.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
(A) Sources
The Partnership's primary current source of liquidity is
operating cash flow. The Partnership's level of operating cash
flow has declined from 1993 levels due in part to depressed
conditions in certain equipment markets (see "Trends" below) that
have impacted re-leasing rates, and the sale of certain partnership
equipment.
The Partnership uses net operating cash flow primarily to pay
cash distributions to the Partners and, to the extent available, to
add to working capital reserves. Proceeds realized from the sale or
disposal of equipment may be used for the purchase of additional
equipment, or the repayment of outstanding debt. The Partnership's
sources of capital include proceeds from its initial public
offering of limited partnership units, debt financing, and during
the reinvestment phase of the partnership, excess net cash flow
from operations remaining after a certain level of distributions
have been made to the Limited Partners.
On March 30, 1994, the Partnership completed a refinancing of
its $35 million bank loan that was due on September 30, 1995. The
new debt comprises notes payable of $35,000,000, and the
corresponding loan agreements require the Partnership to maintain
a minimum debt coverage ratio based on the fair market value of
equipment, a minimum fixed charge coverage ratio, and discourage
over concentration in any one equipment type.
(B) Asset Sales and Purchases
Equipment sales and dispositions prior to the Partnership's
planned liquidation phase can result from a performance-based
decision by the General Partner or, in some cases, an election of
the lessee provided for in certain lease agreements. Additionally,
certain lessees are required to pay stipulated loss values on
equipment lost or disposed during the term of the lease agreement.
The General Partner intends to use the proceeds realized either
from the selective sale of assets or from the incidental disposal
of equipment to invest in additional equipment during the
reinvestment phase of Partnership operations, and subsequent to
that phase, to distribute such proceeds to the Partners or pay down
debt.
During the three months ended March 31, 1994, the Partnership
purchased 1,147 used marine containers at a cost of approximately
$0.5 million, and disposed of 95 marine containers and 261 trailers
for proceeds of approximately $1.7 million.
The General Partner has not planned expenditures, nor is it
aware of any contingencies that would require capital resources
other than provided by operating cash flow and sales and
liquidation proceeds.
(C) Depositary Unit Repurchase Plan
On December 28, 1992, the Partnership engaged in a program to
repurchase up to 200,000 Depositary Units. As of March 31, 1994,
the Partnership had repurchased 6,700 Depositary Units at a cost of
$70,035.
(D) Market Value
The General Partner prepares an evaluation of the net
realizable value and fair market value of the Partnership's
equipment portfolio at least annually, using, among other sources,
independent third-party appraisals, values reported in trade
publications, and comparative values from arms-length transactions
for similar equipment. Concurrently, the General Partner evaluates
whether the current fair market value of equipment represents the
effects of the current market conditions or permanent impairment of
value (e.g., technological obsolescence or regulatory changes,
etc.). Equipment whose carrying value is determined to be
permanently impaired, without possibility of being leased at an
acceptable rate, has its book value adjusted to the estimated net
realizable value. Uncertain market conditions have caused the
General Partner to closely monitor the changes in market values for
Partnership equipment, and on occasion, the General Partner has
made adjustments to Partnership equipment values that reflect this
volatility. While there has continued to be a general decline in
certain market values, the total fair market value of the assets
still exceeds the Partnership's carrying value. No adjustments to
reflect impairment of equipment carrying values were recorded in
the first quarter of 1994.
Comparison of the Partnership's Operating Results for the Three
Months Ended March 31, 1994 and 1993
(A) Revenues
Total revenues for the quarter ended March 31, 1994 of $6.9
million declined from $14.6 million, for the same period in 1993.
This decrease resulted primarily from:
(1) Lease revenues for the quarter ended March 31, 1994 declined
by approximately $1.5 million primarily as a result of:
(a) declines of approximately $1.3 million in marine vessel
revenues due to the sale of three on-lease vessels in 1993;
(b) declines of approximately $0.5 million in railcar revenues
due to the sale of 639 railcars during 1993.
(c) declines of approximately $0.2 million in container
revenues due to the liquidation of 305 marine containers in 1993
and 95 marine containers in the first quarter of 1994;
(d) an increase of approximately $0.4 million in Mobile
Offshore Drilling Unit ("Rig") revenue reflecting the revenue on
the Rig acquired in 1993.
(2) Net gain on disposition of equipment during the first quarter
of 1994 totaled approximately $0.6 million from the sale or
disposal of 261 trailers and 95 marine containers with a net book
value of approximately $1.1 million, for proceeds of approximately
$1.7 million. This compares to a $6.8 million gain in the prior
year.
(B) Expenses
Total expenses for the quarter ended March 31, 1994, decreased
to approximately $6.1 million from $8.2 million for the same period
in 1993. The decrease in 1994 expenses was primarily attributable
to decreases in depreciation expense, marine vessel operating
expenses, and insurance expense.
(1) Direct Operating Expenses (defined as repairs and maintenance,
insurance expenses, and marine operating expenses) decreased by
$1.2 million for the first quarter of 1994 as compared to 1993.
This decrease resulted from:
(a) a decrease of approximately $1.0 million in marine vessel
operating expenses due to the sale of three marine vessels in 1993.
This decrease was partially offset by increased operating costs for
the remaining marine vessels as certain of the Partnership's marine
vessels were operated on short-term voyage charters where the
Partnership pays for some costs, such as bunkers and port costs,
that were borne by the lessees under several of the Partnership's
previous vessel charter agreements;
(b) a decrease of approximately $0.5 million in the cost of
marine vessel insurance due to the sale of three marine vessels in
1993 and a refund of a $0.2 million from an insurance pool, that the
Partnership's marine vessels are in, due to lower than estimated
insurance claims in the pool;
(c) an increase of approximately $0.4 million in repairs and
maintenance costs from 1993 levels due partially to higher repairs
and maintenance costs, incurred normally as the marine vessel fleet
ages, offset by a reduction in drydock expenses resulting from the
sale of the three marine vessels in 1993.
(2) Indirect Operating Expenses (defined as depreciation expense,
management fees,interest expense, and general and administrative
expenses) decreased by $0.8 million in 1994 compared to 1993. This
change resulted primarily from:
(a) a decrease in depreciation expense of approximately $0.8
million from 1993 levels reflecting the Partnership's double-
declining depreciation method and the effect of asset sales in
1993, partially offset by the acquisition of a mobile offshore
drilling unit in July 1993;
(b) a decrease of approximately $0.1 million in management
fees to affiliates reflecting the lower levels of lease revenues in
1994 as compared to 1993.
(C) Net Income (Loss)
The Partnership's net income of $0.8 million for the quarter
decreased from a net income of $6.4 million in the first quarter of
1993. The Partnership's ability to acquire, 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 first quarter 1994
is not necessarily indicative of future periods. In the first
quarter 1994, the Partnership distributed $3.0 million to the
Limited Partners, or $0.40 per Depositary Unit.
Trends
Due in part to extended worldwide recessionary conditions
experienced over the past several quarters, the markets for certain
types of transportation equipment, primarily aircraft, marine
containers and marine vessels, are currently depressed and
performing below historical norms.
The return of lease rates on certain types of equipment to
their historical levels may be dependent on a number of factors
including improved international economic conditions, the absence
of specific technological obsolescence, new government regulations,
increased industry specific demand and the increased availability
of financing.
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, if any, may generate additional earnings and cash
flow for the Partnership.
<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 FUND II
By: PLM Financial Services,
Inc.
General Partner
Date: May 12, 1994 By: /s/ J. Michael Allgood
J. Michael Allgood
Vice President and
Chief Financial Officer
