UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the fiscal quarter ended
September 30, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission file number 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 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 II
(A Limited Partnership)
BALANCE SHEETS
(in thousands of dollars)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------------------------------------
<S> <C> <C>
Equipment held for operating leases $ 89,675 $ 93,980
Less accumulated depreciation (66,014 ) (65,000 )
------------------------------------------
23,661 28,980
Equipment held for sale 410 --
------------------------------------------
Net equipment 24,071 28,980
Cash and cash equivalents 10,141 6,427
Restricted cash 415 548
Investment in unconsolidated special purpose entities 1,839 10,515
Accounts receivable, less allowance for
doubtful accounts of $602 in 1996 and $19 in 1995 1,781 2,198
Deferred charges, net of accumulated amortization of
$1,434 in 1996 and $1,374 in 1995 177 237
Prepaid expenses and other assets 5 52
------------------------------------------
Total assets $ 38,429 $ 48,957
==========================================
Liabilities:
Accounts payable and accrued expenses $ 248 $ 409
Due to affiliates 199 398
Note payable 18,000 27,000
Prepaid deposits and reserve for repairs 1,971 2,954
------------------------------------------
Total liabilities 20,418 30,761
Partners' capital (deficit):
Limited Partners (7,381,805 and 7,426,305 Depositary Units,
including 1,150 Depositary Units held in the
Treasury at September 30, 1996 and December 31, 1995) 18,383 18,658
General Partner (372 ) (462 )
------------------------------------------
Total partners' capital 18,011 18,196
------------------------------------------
Total liabilities and partners' capital $ 38,429 $ 48,957
==========================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
STATEMENTS OF OPERATIONS
(In thousands of dollars except per unit amounts)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
1996 1995 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Lease revenue $ 3,027 $ 4,005 $ 9,408 $ 12,943
Interest and other income 98 152 240 401
Net gain on disposition of equipment 100 496 267 1,351
----------------------------------------------------------------
Total revenues 3,225 4,653 9,915 14,695
Expenses:
Depreciation and amortization 1,433 2,149 4,358 6,479
Management fees to affiliate 130 203 451 637
Interest expense 489 584 1,460 1,851
Insurance expense to affiliate -- -- -- 87
Other insurance expense 32 33 69 128
Repairs and maintenance 532 663 1,495 2,065
Marine equipment operating expenses -- 31 -- 176
General and administrative
expenses to affiliates 378 206 587 669
Other general and administrative expenses (30 ) 281 702 917
Provision for (recovery of) bad debt 159 (60 ) 384 192
Loss on revaluation of equipment -- 667 -- 667
----------------------------------------------------------------
----------------------------------------------------------------
Total expenses 3,123 4,757 9,506 13,868
----------------------------------------------------------------
Equity in net income of unconsolidated
special purpose entities 7,023 -- 6,599 --
----------------------------------------------------------------
Net income (loss) $ 7,125 $ (104 ) $ 7,008 $ 827
================================================================
Partners' share of net income (loss):
Limited Partners $ 7,002 $ (612 ) $ 6,567 $ 67
General Partner 123 508 441 760
----------------------------------------------------------------
Total $ 7,125 $ (104 ) $ 7,008 $ 827
================================================================
Net income (loss) per Depositary Unit
(7,381,805 and 7,439,005 Units,
including 1,150 Units held in Treasury
respectively,
at September 30, 1996 and 1995) $ 0.95 $ (0.08 ) $ 0.89 $ 0.01
================================================================
Cash distributions $ 1,944 $ 3,132 $ 7,014 $ 9,416
================================================================
Cash distributions per Depositary Unit $ 0.25 $ 0.40 $ 0.90 $ 1.20
================================================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For
the period from December 31, 1994 to September 30, 1996
(in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
---------------------------------------------------
<S> <C> <C> <C>
Partners' capital (deficit) at December 31, 1994 $ 30,850 $ (697 ) $ 30,153
Net income 75 862 937
Cash distributions (11,922 ) (627 ) (12,549 )
Repurchase of Depositary Units (345 ) -- (345 )
---------------------------------------------------
Partners' capital (deficit) at December 31, 1995 18,658 (462 ) 18,196
Net income 6,567 441 7,008
Cash distributions (6,663 ) (351 ) (7,014 )
Repurchase of Depositary Units (179 ) -- (179 )
---------------------------------------------------
Partners' capital (deficit) at September 30, 1996 $ 18,383 $ (372 ) $ 18,011
===================================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
1996 1995
-----------------------------------
<S> <C> <C>
Operating activities:
Net income $ 7,008 $ 827
Adjustments to reconcile net income to net
cash provided by operating activities:
Net gain on disposition of equipment (267 ) (1,351 )
Loss on revaluation of equipment -- 667
Depreciation and amortization 4,358 6,479
Income from unconsolidated special purpose
entities in excess of cash distributions (5,596 ) --
Changes in operating assets and liabilities:
Restricted cash 133 1
Accounts receivable, net 369 131
Due to affiliate (199 ) 446
Prepaid expenses and other assets 47 80
Accounts payable and accrued expenses (161 ) (229 )
Accrued drydock expenses -- 271
Prepaid deposits and reserve for repairs (983 ) (694 )
-----------------------------------
Cash provided by operating activities 4,709 6,628
-----------------------------------
Investing activities:
Proceeds from disposition of equipment 933 6,743
Liquidation proceeds from unconsolidated special purpose entities 14,272 --
Payments for capital improvements (7 ) (11 )
-----------------------------------
Cash provided by investing activities 15,198 6,732
-----------------------------------
Financing activities:
Principal payments on notes payable (9,000 ) (8,000 )
Cash distributions paid to Limited Partners (6,663 ) (8,945 )
Cash distributions paid to General Partner (351 ) (471 )
Repurchase of Depositary Units (179 ) (266 )
-----------------------------------
Cash used in financing activities (16,193 ) (17,682 )
-----------------------------------
Cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents 3,714 (4,322 )
Cash and cash equivalents at beginning of period 6,427 12,348
-----------------------------------
Cash and cash equivalents at end of period $ 10,141 $ 8,026
===================================
Supplemental information:
Interest paid $ 1,457 $ 1,795
===================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
1. Opinion of Management
In the opinion of the management of PLM Financial Services, Inc., 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 September 30, 1996, the statements of
operations for the three and nine months ended September 30, 1996 and 1995,
the statements of changes in partners' capital, for the period from
December 31, 1994 to September 30, 1996 and the statements of cash flows
for the nine months ended September 30, 1996 and 1995. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted from the accompanying financial statements. For
further information, reference should be made to the financial statements
and notes thereto included in the Partnership's Annual Report on Form 10-K
for the year ended December 31, 1995, on file at the Securities and
Exchange Commission.
2. Investment 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 method of
accounting for 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 investment in unconsolidated special purpose entities includes the
following jointly-owned equipment (and related assets and liabilities) (in
thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------------------------------------
<S> <C> <C>
50% interest in a Boeing 737-200A aircraft $ 1,839 $ 2,365
55% interest in a mobile offshore drilling unit -- 8,150
---------------------------------------
Investment in unconsolidated special purpose
entities $ 1,839 $ 10,515
=======================================
</TABLE>
During the nine months ended September 30, 1996, the General Partner sold
the asset related to the Partnership's 55% interest in a mobile offshore
drilling unit, included in "Investment in Unconsolidated Special Purpose
Entities," with a net book value of $7.2 million for proceeds of $14.3
million. For the same period ended September 30, 1995, the General Partner
sold the assets related to the Partnership's 50% owned DC-9 aircraft and
50% owned marine vessel, included in "Investment in Unconsolidated Special
Purpose Entities," with an aggregate net book value of $3.2 million and
unused drydock reserves of $0.3 million, for proceeds of $3.5 million. The
Partnership
<PAGE>
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
2. Investment in Unconsolidated Special Purpose Entities (continued)
received liquidating distributions from the Unconsolidated Special Purpose
Entities during the third quarter.
3. Cash Distribution
Cash distributions are recorded when paid and totaled $7,014,000 and
$9,416,000 for the nine months ended September 30, 1996 and 1995,
respectively, and $1,944,000 and $3,132,000 for the three months ended
September 30, 1996 and 1995, respectively. Cash distributions to Limited
Partners in excess of net income are considered to represent a return of
capital. Cash distributions to Limited Partners of $96,000 and $8,878,000
for the nine months ended September 30, 1996, and 1995, respectively, were
deemed to be a return of capital.
Cash distributions of $1,943,000 ($0.25 per Depositary Unit) were declared
on October 24, 1996, and are to be paid on November 15, 1996, to the
unitholders of record as of September 30, 1996.
4. Repurchase of Depositary Units
On December 28, 1992, the Partnership engaged in a program to repurchase up
to 200,000 Depositary Units. In the nine months ended September 30, 1996,
the Partnership had purchased and canceled 44,500 Depositary Units at a
cost of $0.2 million. As of September 30, 1996, the Partnership had
cumulatively repurchased 105,100 Depositary Units at a cost of $0.8
million.
5. Delisting of Partnership Units
The General Partner delisted the Partnership's depositary units from the
American Stock Exchange (AMEX) under the symbol GFY 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 remain publicly traded after December 31, 1997.
Treating the Partnership as a corporation would mean the Partnership itself
would 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 become distributed to an investor. In
addition, the General Partner believed that the trading price of the
Depositary Units would have been 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
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.
<PAGE>
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
6. Equipment
Owned equipment held for operating leases is stated at cost. The components
of equipment are as follows (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
--------------------------------------
<S> <C> <C>
Equipment held for operating leases:
Rail equipment $ 18,244 $ 19,747
Marine containers 12,023 13,399
Aircraft 37,901 37,902
Trailers and tractors 21,507 22,932
------------------------------------
89,675 93,980
Equipment held for sale 410 --
------------------------------------
90,085 93,980
Less accumulated depreciation (66,014 ) (65,000 )
------------------------------------
====================================
Net equipment $ 24,071 $ 28,980
====================================
</TABLE>
Revenues are earned by placing the equipment under operating leases which
are generally billed monthly or quarterly. Certain 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 September 30, 1996, all equipment in the Partnership's portfolio was
either on lease or operating in PLM-affiliated short-term trailer rental
facilities, except for an aircraft, 84 marine containers and seven
railcars. With the exception of 266 marine containers and one tractor, all
equipment in the Partnership portfolio was either on lease or operating in
PLM-affiliate short-term trailer rental facilities at December 31, 1995.
The aggregate carrying value of equipment off-lease was $1,597,000 and
$1,136,000 at September 30, 1996 and December 31, 1995, respectively.
During the nine months ended September 30, 1996, the Partnership sold or
disposed of 208 marine containers, 112 trailers and five railcars with an
aggregate net book value of $0.6 million, for proceeds of $0.9 million. For
the nine months ended September 30, 1995, the Partnership sold or disposed
of 2,209 marine containers, nine trailers, one tractor and one railcar,
with an aggregate net book value of $2.4 million, for proceeds of $3.2
million.
7. Notes Payable
In September of 1996, the Partnership prepaid $9 million of the $35 million
outstanding note payable. This payment was applied to the third annual
installment due March 31, 1998. In 1995, the Partnership prepaid the first
annual $4 million installment of the loan due March 31, 1996, and the
second annual $4 million installment due March 31, 1997. All prepayments
were due to the sale of assets.
In May 1996, the General Partner revised its short term loan facility (the
"Committed Bridge Facility") and PLM Equipment Growth Fund II is no longer
included as a borrower.
8. Subsequent Event
In October of 1996, the Partnership sold 39 railcars with a net book value
of $0.4 million, for proceeds of $0.9 million. This group of railcars was
classified as equipment held for sale at September 30, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(I) RESULTS OF OPERATIONS
Comparison of the Partnership's Operating Results for the Three Months Ended
September 30, 1996 and 1995
(A) Owned equipment operations
Lease revenues less direct expenses (defined as repairs and maintenance, marine
equipment operating, and asset specific insurance expenses) on owned equipment
decreased during the third quarter of 1996 when compared to the same quarter of
1995. The following table presents lease revenues less direct expenses by owned
equipment type (in thousands):
<TABLE>
<CAPTION>
For the three months
ended September 30,
1996 1995
----------------------------
<S> <C> <C>
Aircraft $ 609 $ 749
Trailers 826 936
Rail equipment 753 816
Marine containers 298 368
</TABLE>
Aircraft: Aircraft lease revenues were $0.6 million and $0.8 million, for the
third quarter of 1996 and 1995, respectively, during the same quarter of 1995.
The decrease in aircraft contributions was due to the off-lease status of an
aircraft in 1996, which was on-lease for the entire third quarter of 1995;
Trailers: Trailer lease revenues and direct expenses were $1.0 million and $0.1
million, respectively, for the third quarter of 1996, compared to $1.1 million
and $0.2 million, respectively, during the same quarter of 1995. The decrease in
trailer contribution was due to the lower utilization in the PLM affiliated
short-term rental yards;
Rail equipment: Railcar lease revenues and direct expenses were $1.1 million and
$0.4 million, respectively, for the third quarter of 1996, compared to $1.2
million and $0.4 million, respectively, during the same quarter of 1995. The
decrease in railcar contribution was due to the off-lease status of seven
railcars in the third quarter of 1996, which were on-lease for the entire third
quarter of 1995;
Marine containers: Marine container lease revenues were $0.3 million and $0.4
million during the third quarter of 1996 and 1995, respectively. 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 revenue.
(B) Indirect expenses related to owned equipment operations
Total indirect expenses of $2.6 million for the third quarter of 1996 decreased
from $2.8 million for the same period in 1995. The variances are explained as
follows:
(a) A $0.2 million decrease in depreciation and amortization expense from
1995 levels, reflecting the effect of asset sales in 1995 and 1996;
(b) A $0.1 million decrease in interest expense due to a lower base rate of
interest charged on the Partnership's floating rate debt during the third
quarter of 1996 as compared to the same period in 1995. In September of 1996,
the Partnership prepaid $9 million of the $35 million outstanding note payable.
This payment was applied to the third annual installment due March 31, 1998. In
1995, the Partnership prepaid $8.0 million of the outstanding note payable
representing the principal payments due March 31, 1996 and 1997;
(c) A $0.1 million decrease in administrative expenses from 1995 levels due
to reduced office expenses and professional services required by the
Partnership;
(d) A $0.1 million decrease in management fee to affiliates, reflecting the
lower levels of lease revenues in 1996 as compared to 1995;
(e) A $0.2 million increase in bad debt expense to reflect the General
Partner's evaluation of the collectibility of receivables due from a container
lessee that encountered financial difficulties.
(C) Loss on revaluation of equipment of $0.7 million in the third quarter of
1995 resulted from the reduction of the net book value of an aircraft to its
estimated net realizable value. There was no loss on revaluation of equipment in
the third quarter of 1996.
(D) Net gain on disposition of owned equipment
Net gain on disposition of equipment for the third quarter of 1996 totaled $0.1
million which resulted from the disposal or sale of six trailers, 65 marine
containers and two railcars with an aggregate net book value of $0.1 million,
for aggregate proceeds of $0.2 million. For the same period in 1995, the $0.5
million net gain on disposition of equipment resulted from the sale or disposal
of the one trailer and 2,069 marine containers with an aggregate net book value
of $2.1 million, for proceeds of $2.6 million.
(E) Interest and other income
Interest and other income decreased $0.1 million during the third quarter of
1996 due primarily to lower interest rates earned on cash equivalents when
compared to the same period of 1995.
(F) Equity in net income (loss) of unconsolidated special purpose entities
represents net 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 September 30,
1996 1995
----------------------------
<S> <C> <C>
Aircraft $ (70 ) $ 43
Mobile offshore drilling unit 7,093 (70 )
</TABLE>
Aircraft: As of September 30, 1996 and 1995, the Partnership owned a
50%-investment in a commercial aircraft. Revenues and expenses were $0.0 and
$0.1 million, respectively, for the third quarter of 1996, compared to $0.1
million and $0.1 million, respectively, for the same period in 1995. The
Partnership's share of revenue decreased due to the off-lease status of this
aircraft during the third quarter of 1996, which was on-lease for the entire
quarter of 1995.
Mobile offshore drilling unit: As of September 30, 1995, the Partnership owned a
55% investment in a mobile offshore drilling unit (rig). The General Partner
sold the asset related to this investment resulting in $7.1 million in net
gains, and the Partnership received a liquidating distribution during the third
quarter of 1996.
(G) Net Income (loss)
As a result of the foregoing, the Partnership's net income of $7.1 million for
the third quarter of 1996, increased from net loss of $0.1 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 of 1996 is not necessarily indicative of future periods.
In the third quarter of 1996, the Partnership distributed $1.8 million to the
Unitholders, or $0.25 per Depositary Unit.
<PAGE>
Comparison of the Partnership's Operating Results for the Nine Months Ended
September 30, 1996 and 1995
(A) Owned equipment operations
Lease revenues less direct expenses (defined as repairs and maintenance, marine
equipment operating, and asset specific insurance expenses) on owned equipment
decreased during the nine months ended September 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 nine months
ended September 30,
1996 1995
----------------------------
<S> <C> <C>
Aircraft $ 1,821 $ 1,506
Trailers 2,612 3,344
Rail equipment 2,460 2,689
Marine containers 997 1,264
</TABLE>
Aircraft: Aircraft lease revenues and direct expenses were $1.8 million and
$10,000, respectively, for the nine months ended September 30, 1996, compared to
$2.2 million and $0.7 million, respectively, during the same period of 1995.
Lease revenues decreased due to the off-lease status of an aircraft in 1996,
offset by another aircraft, which was off-lease in the first quarter of 1995.
Direct expenses decreased due to the costs incurred in the nine months ended
September 30, 1995 to refurbish another aircraft prior to being re-leased in
1995;
Trailers: Trailer lease revenues and direct expenses were $3.0 million and $0.4
million, respectively, for the nine months ended September 30, 1996, compared to
$3.8 million and $0.5 million, respectively, during the same period of 1995. The
decrease in net contribution was due to the sale of 112 trailers in 1996. In
addition, the trailer fleet is experiencing lower utilization in the PLM
affiliated short-term rental yards;
Rail equipment: Railcar lease revenues and direct expenses were $3.5 million and
$1.0 million, respectively, for the nine months ended September 30, 1996,
compared to $3.6 million and $0.9 million, respectively during the same period
of 1995. The decrease in railcar contribution resulted from the off-lease status
of seven railcars in the third quarter of 1996. In addition, expenses increased
due to running repairs required on certain of the railcars during 1996 which
were not needed during 1995;
Marine containers: Marine container lease revenues were $1.0 million and $1.3
million for the nine months ended September 30, 1996 and 1995, respectively. 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 revenue.
(B) Indirect expenses related to owned equipment operations
Total indirect expenses of $7.9 million for the nine months ended September 30,
1996, decreased from $8.7 million for the same period in 1995. The variances are
explained as follows:
(a) A $0.3 million decrease in depreciation and amortization expense from
1995 levels, reflecting the effect of asset sales in 1995 and 1996;
(b) A $0.4 million decrease in interest expense due to a lower base rate of
interest charged on the Partnership's floating rate debt during the nine months
ended September 30, 1996 as compared to the same period in 1995. In September of
1996, the Partnership prepaid $9 million of the $35 million outstanding note
payable. This payment was applied to the third annual installment due March 31,
1998. In 1995, the Partnership prepaid $8.0 million of the outstanding note
payable representing the principal payments due March 31, 1996 and 1997;
(c) A $0.2 million decrease in administrative expenses from 1995 levels due
to reduced office expenses and professional services required by the
Partnership.
(d) A $0.1 million decrease in management fee to affiliates, reflecting the
lower levels of lease revenues in 1996 as compared to 1995;
(e) A $0.2 million increase in bad debt expense to reflect the General
Partner's evaluation of the collectibility of receivables due from a container
lessee that encountered financial difficulties.
(C) Loss on revaluation of equipment of $0.7 million in 1995 resulted from the
reduction of the net book value of an aircraft to its estimated net realizable
value. There was no loss on revaluation of equipment in the nine months ended
September 30, 1996.
(D) Net gain on disposition of owned equipment
Net gain on disposition of equipment for the nine months ended September 30,
1996 totaled $0.3 million which resulted from the sale or disposal of 208 marine
containers, 112 trailers, and five railcars, with an aggregate net book value of
$0.6 million for aggregate proceeds of $0.9 million. For the nine months ended
September 30, 1995, the $0.8 million net gain on disposition of equipment
resulted from the sale or disposal of 2,209 marine containers, nine trailers,
one tractor, and one railcar with an aggregate net book value of $2.4 million,
for aggregate proceeds of $3.2 million.
(E) Interest and other income
Interest and other income decreased $0.2 million during the nine months ended
September 30, 1996 due primarily to lower interest rates earned on cash
equivalents when compared to the same period of 1995.
(F) Equity in net loss of unconsolidated special purpose entities represents net
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 nine months
ended September 30,
1996 1995
----------------------------
<S> <C> <C>
Aircraft $ (381 ) $ 201
Mobile offshore drilling unit 6,980 (213 )
Marine vessel -- 346
</TABLE>
Aircraft: As of September 30, 1996 and 1995, the Partnership owned a 50%
investment in a commercial aircraft. Revenues and expenses were $0.4 million and
$0.8 million, respectively, for the nine months ended September 30, 1996,
compared to $0.6 million and $0.4 million, respectively, for the same period in
1995. The Partnership's share of revenue decreased $0.2 million due to the
off-lease status of this aircraft during the third quarter of 1996, which was
on-lease for the entire third quarter of 1995. The Partnership's share of
expenses increased $0.4 million due to the increase in bad debt expense to
reflect the General Partner's evaluation of the collectibility of receivables
due from the aircraft's lessee that encountered financial difficulties.
During 1995, the General Partner sold the asset related to the Partnership's 50%
owned DC-9 aircraft resulting of $47,000 in net gain, and the Partnership
received a liquidating distribution during the second quarter.
Mobile offshore drilling unit: As of September 30, 1995, the Partnership owned a
55%-investment in a mobile offshore drilling unit (rig). The General Partner
sold the assets related to this investment resulting in $7.1 million in net
gain, offset by a net loss from operations of $0.2 million, and the Partnership
received a liquidating distribution during the third quarter of 1996.
Marine vessel: In the second quarter of 1995, the General Partner sold the asset
related to the Partnership's 50% investment in a marine vessel resulting in a
$0.5 million gain, offset by a net loss from operations of $0.2 million, and the
Partnership received a liquidating distribution during the third quarter.
<PAGE>
(G) Net Income
As a result of the foregoing, the Partnership's net income of $7.0 million for
the nine months ended September 30, 1996, increased from net income of $0.8
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 nine months ended September 30, 1996 is not
necessarily indicative of future periods. In the nine months ended September 30,
1996, the Partnership distributed $6.7 million to the Limited Partners, or $0.90
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. The Partnership's
total outstanding indebtedness, currently $18.0 million, can only be increased
up to a maximum of $35 million subject to specific covenants in the existing
debt agreement. The Partnership relies on operating cash flow to meet its
operating obligations, make cash distributions to partners, and increase the
Partnership's equipment portfolio with any remaining surplus cash available.
Pursuant to the Limited Partnership Agreement, the Partnership ceased to
reinvest in additional equipment effective December 31, 1995. During the
reinvestment phase of the Partnership, the General Partner assembled an
equipment portfolio capable of achieving a level of operating cash flow for the
remaining life of the Partnership sufficient to meet its obligations and sustain
a predictable level of distributions to the partners. Equipment sales now result
in partial liquidation of the Partnership's portfolio, with proceeds being used
for payment of debt or distributions to partners.
In the third quarter of 1996, the Partnership used $9.0 million in proceeds
from the sale of assets and other cash on hand to prepay the third annual $9
million principal installment of the loan due March 31, 1998. In 1995, the
Partnership prepaid the first annual $4 million installment of the loan due
March 31, 1996, and the second annual $4 million installment due March 31, 1997.
In June 1996, the General Partner revised its short term loan facility,
(the "Committed Bridge Facility") and PLM Equipment Growth Fund II is no longer
included as a borrower.
For the nine months ended September 30, 1996, the Partnership generated
sufficient operating revenues to meet its operating obligations, but used
undistributed available cash from prior periods of approximately $1.6 million to
maintain the current level of distributions (total 1996 of $7.0 million) to the
partners.
(III) DELISTING OF PARTNERSHIP UNITS
The General Partner delisted the Partnership's depositary units from the
American Stock Exchange (AMEX) under the symbol GFY 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. On
December 28, 1992, the Partnership engaged in a program to repurchase up to
200,000 Depositary Units. In the nine months ended September 30, 1996, the
Partnership had purchased and canceled 44,500 Depositary Units at a cost of $0.2
million. As of September 30, 1996, the Partnership had cumulatively repurchased
105,100 Depositary Units at a cost of $0.8 million.
(IV) TRENDS
The Partnership's operation of a diversified equipment portfolio in a broad base
of markets is intended to reduce its exposure to volatility in individual
equipment sectors. Throughout 1995 and the first part of 1996, market
conditions, supply and demand equilibrium, and other factors varied in several
markets. In the container and refrigerated over-the-road trailer markets,
oversupply conditions, industry consolidations, and other factors resulted in
falling rates and lower returns. In the dry over-the-road trailer markets,
strong demand and a backlog of new equipment deliveries produced high
utilization and returns. The marine vessel, rail, and mobile offshore drilling
unit markets could be generally categorized by increasing rates as the demand
for equipment is increasing faster than new additions net of retirements.
Finally, demand for narrowbody stage II aircraft, such as those owned by the
Partnership, has increased as expected savings from newer narrowbody aircraft
have not materialized and deliveries of the newer aircraft have slowed down.
These trends are expected to continue for the near term. These different markets
have had individual effects on the performance of Partnership equipment in some
cases resulting in declining performance, and in others, in improved
performance.
The ability of the Partnership to realize acceptable lease rates on its
equipment in the different equipment markets is contingent on many factors, such
as specific market conditions and economic activity, technological obsolescence,
governmental or other regulations, and others. The unpredictability of some of
these factors, or of their occurrence, makes it difficult for the General
Partner to clearly define trends or influences that may impact the performance
of the Partnership's equipment. The General Partner continuously monitors both
the equipment markets and the performance of the Partnership's equipment in
these markets. The General Partner may 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
The Partnership intends to use cash flow from operations to satisfy its
operating requirements, pay loan principal on debt, and pay cash distributions
to the investors.
<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 there unto duly authorized.
PLM EQUIPMENT GROWTH FUND II
By: PLM Financial Services, Inc.
General Partner
Date: November 11, 1996 By: /s/ David J. Davis
------------------
David J. Davis
Vice President and
Corporate Controller
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