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
June 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 900, San Francisco, CA 94105-1301
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code (415) 974-1399
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ______
<PAGE>
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
BALANCE SHEETS
(in thousands of dollars)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------------------------------
<S> <C> <C>
Equipment held for operating leases $ 91,631 $ 93,980
Less accumulated depreciation (66,072 ) (65,000 )
------------------------------------
Net equipment 25,559 28,980
Cash and cash equivalents 5,180 6,427
Restricted cash 415 548
Investment in unconsolidated special purpose entities 9,912 10,515
Accounts receivable, less allowance for
doubtful accounts of $450 in 1996 and $19 in 1995 1,856 2,198
Deferred charges, net of accumulated amortization of
$1,414 in 1996 and $1,374 in 1995 197 237
Prepaid expenses and other assets 17 52
------------------------------------
Total assets $ 43,136 $ 48,957
====================================
LIABILITIES
Liabilities:
Accounts payable and accrued expenses $ 383 $ 409
Due to affiliates 246 398
Note payable 27,000 27,000
Prepaid deposits and reserve for repairs 2,677 2,954
------------------------------------
Total liabilities 30,306 30,761
Partners' capital (deficit):
Limited Partners (7,385,605 and 7,426,305 Depositary Units,
including 1,150 Depositary Units held in the
Treasury at June 30, 1996 and December 31, 1995) 13,227 18,658
General Partner (397 ) (462 )
------------------------------------
Total partners' capital 12,830 18,196
------------------------------------
Total liabilities and partners' capital $ 43,136 $ 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 six months
ended June 30, ended June 30,
1996 1995 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Lease revenue $ 3,200 $ 4,407 $ 6,381 $ 8,938
Interest and other income 69 104 142 249
Net gain on disposition of equipment 53 804 167 854
----------------------------------------------------------------
Total revenues 3,322 5,315 6,690 10,041
Expenses:
Depreciation and amortization 1,458 1,985 2,925 4,330
Management fees to affiliate 172 196 321 434
Interest expense 483 555 971 1,267
Insurance expense to affiliate -- -- -- 87
Other insurance expense 16 78 37 95
Repairs and maintenance 573 848 963 1,401
Marine equipment operating expenses -- 179 -- 145
General and administrative
expenses to affiliates 15 231 209 462
Other general and administrative expenses 422 327 732 638
Bad debt expense 194 233 225 251
----------------------------------------------------------------
Total expenses 3,333 4,632 6,383 9,110
----------------------------------------------------------------
Equity in net loss of unconsolidated special
purpose entities (22 ) -- (424 ) --
----------------------------------------------------------------
Net income (loss) $ (33 ) $ 683 $ (117 ) $ 931
================================================================
Partners' share of net income (loss):
Limited Partners $ (166 ) $ 614 $ (435 ) $ 679
General Partner 133 69 318 252
----------------------------------------------------------------
Total $ (33 ) $ 683 $ (117 ) $ 931
================================================================
Net income (loss) per Depositary Unit
(7,385,605 and 7,439,005 Units,
including 1,150 Units held in Treasury
respectively,
at June 30, 1996 and 1995) $ (0.02 ) $ 0.08 $ (0.06 ) $ 0.09
================================================================
Cash distributions $ 1,943 $ 3,138 $ 5,070 $ 6,284
================================================================
Cash distributions per Depositary Unit $ 0.25 $ 0.40 $ 0.65 $ 0.80
================================================================
</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 June 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 (loss) 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 (loss) (435 ) 318 (117 )
Cash distributions (4,817 ) (253 ) (5,070 )
Repurchase of Depositary Units (179 ) -- (179 )
---------------------------------------------------
Partners' capital (deficit) at June 30, 1996 $ 13,227 $ (397 ) $ 12,830
===================================================
</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 six months
ended June 30,
1996 1995
-----------------------------------
<S> <C> <C>
Operating activities:
Net income (loss) $ (117 ) $ 931
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Net gain on disposition of equipment (167 ) (854 )
Depreciation and amortization 2,925 4,330
Loss from unconsolidated special purpose entities in excess of
cash received 603 --
Changes in operating assets and liabilities:
Restricted cash 133 --
Accounts receivable, net 342 2
Due to affiliate (152 ) 128
Prepaid expenses and other assets 35 66
Accounts payable and accrued expenses (26 ) 165
Accrued drydock expenses -- 271
Prepaid deposits and reserve for repairs (277 ) (717 )
-----------------------------------
Cash provided by operating activities 3,299 4,322
-----------------------------------
Investing activities:
Proceeds from disposition of equipment 709 4,070
Payments for capital improvements (6 ) (11 )
-----------------------------------
Cash provided by investing activities 703 4,059
Financing activities:
Principal payments on notes payable -- (7,000 )
Cash distributions paid to Limited Partners (4,817 ) (5,970 )
Cash distributions paid to General Partner (253 ) (314 )
Repurchase of Depositary Units (179 ) (266 )
-----------------------------------
Cash used in financing activities (5,249 ) (13,550 )
-----------------------------------
Cash and cash equivalents:
Net (decrease) increase in cash and cash equivalents (1,247 ) (5,169 )
Cash and cash equivalents at beginning of period 6,427 12,348
-----------------------------------
Cash and cash equivalents at end of period $ 5,180 $ 7,179
===================================
Supplemental information:
Interest paid $ 971 $ 1,261
===================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
1. Opinion of Management
In the opinion of the management of PLM Financial Services, Inc., the
General Partner, the accompanying unaudited financial statements contain
all adjustments necessary, consisting primarily of normal recurring
accruals, to present fairly the financial position of PLM Equipment Growth
Fund II (the "Partnership") as of June 30, 1996, the statements of
operations for the three and six months ended June 30, 1996 and 1995, the
statements of changes in partners' capital and the statements of cash flows
for the six months ended June 30, 1996 and 1995. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted from the accompanying financial statements. For
further information, reference should be made to the financial statements
and notes thereto included in the Partnership's Annual Report on Form 10-K
for the year ended December 31, 1995, on file at the Securities and
Exchange Commission.
2. Investment in Unconsolidated Special Purpose Entities
Prior to 1996, the Partnership accounted for operating activities
associated with joint ownership of transporation equipment as undivided
interests, including its proportionate share of each asset with similar
wholly-owned assets in its financial statements. Under generally accepted
accounting principles, the effects of such activities, if material, should
be reported using the equity method of accounting. Therefore, effective
January 1, 1996, the Partnership adopted the equity method to account for
its investment in such jointly-held assets.
The principle differences between the previous accounting method and the
equity method relate to the presentation of activities relating to these
assets in the statement of operations. Whereas, under equity accounting the
Partnership's proportionate share is presented as a single net amount,
equity in net income (loss) of unconsolidated special purpose entities,
under the previous method, the Partnership's income statement reflected its
proportionate share of each individual item of revenue and expense.
Accordingly, the effect of adopting the equity method of accounting has no
cumulative effect on previously reported partner's capital or on the
Partnership's net income (loss) for the period of adoption. Because the
effects on previously issued financial statements of applying the equity
method of accounting to investments in jointly-owned assets are not
considered to be material to such financial statements taken as a whole,
previously issued financial statements have not been restated. However,
certain items have been reclassified in the previously issued balance sheet
to conform to the current period presentation.
The net investment in unconsolidated special purpose entities includes the
following jointly-owned equipment (and related assets and liabilities) (in
thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------------------------------
<S> <C> <C>
50% interest in a Boeing 737-200A aircraft $ 1,969 $ 2,365
55% interest in a mobile offshore drilling unit 7,943 8,150
--------------------------------
Investment in unconsolidated special purpose
entities $ 9,912 $ 10,515
================================
</TABLE>
During the six months ended June 30, 1995, the Partnership sold it's investments
in a 50% owned DC-9 aircraft and a 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.
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
3. Cash Distribution
Cash distributions are recorded when paid and totaled $5,070,000 and
$6,284,000 for the six months ended June 30, 1996 and 1995, respectively,
and $1,943,000 and $3,138,000 for the three months ended June 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 $4,817,000 and $5,291,000 for the six months ended
June 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 July 14, 1996, and are to be paid on August 15, 1996, to the unitholders
of record as of June 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 six months ended June 30, 1996, the
Partnership had purchased and canceled 42,100 Depositary Units at a cost of
$0.2 million. As of June 30, 1996, the Partnership had cumulatively
repurchased 102,700 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
June 30, 1996
6. Equipment
Owned equipment held for operating leases is stated at cost. The components
of equipment are as follows (in thousands):
June 30, December 31,
1996 1995
--------------------------------
Equipment held for operating leases:
Rail equipment $ 19,708 $ 19,747
Marine containers 12,408 13,399
Aircraft 37,901 37,902
Trailers and tractors 21,614 22,932
-------------------------------
91,631 93,980
Less accumulated depreciation (66,072 ) (65,000 )
-------------------------------
===============================
Net equipment $ 25,559 $ 28,980
===============================
Revenues are earned by placing the equipment under operating leases which
are generally billed monthly or quarterly. The Partnership's marine vessel
and certain of its marine containers are leased to operators of
utilization-type leasing pools which include equipment owned by
unaffiliated parties. In such instances revenues received by the
Partnership consist of a specified percentage of revenues generated by
leasing the equipment to sublessees, after deducting certain direct
operating expenses of the pooled equipment. Rents for railcars are based on
mileage traveled or a fixed rate; rents for all other equipment are based
on fixed rates.
As of June 30, 1996, all equipment in the Partnership's portfolio was
either on lease or operating in PLM-affiliated short-term trailer rental
facilities, except for an aircraft, 334 marine containers and 23 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 $2,831,000 and
$1,136,000 at June 30, 1996 and December 31, 1995, respectively.
During the six months ended June 30, 1996, the Partnership sold or disposed
of 143 marine containers, 106 trailers and three railcars with an aggregate
net book value of $0.5 million, for proceeds of $0.7 million. For the six
months ended June 30, 1995, the Partnership sold or disposed of 140 marine
containers, eight trailers, one tractor and one railcar, with an aggregate
net book value of $0.3 million, for proceeds of $0.6 million.
7. Notes Payable
In 1995, the Partnership prepaid $8 million of the outstanding note payable
of $35 million. This payment was applied to the principal payments due
March 31, 1996 and 1997.
In June 1996, the General Partner revised the "Committed Bridge Facility"
and PLM Equipment Growth Fund II is no longer included as a borrower.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(I) RESULTS OF OPERATIONS
Comparison of the Partnership's Operating Results for the Three Months Ended
June 30, 1996 and 1995
(A) Owned equipment operations
Lease revenues less direct expenses (defined as repairs and maintenance, marine
equipment operating, and asset specific insurance expenses) on owned equipment
decreased during the second quarter of 1996 when compared to the same quarter of
1995. The following table presents lease revenues less direct expenses by owned
equipment type (in thousands):
<TABLE>
<CAPTION>
For the three months
ended June 30,
1996 1995
----------------------------
<S> <C> <C>
Aircraft $ 601 $ 192
Trailers 899 1,155
Rail equipment 765 1,048
Marine containers 346 443
</TABLE>
Aircraft: Aircraft lease revenues and direct expenses were $0.6 million and
$9,000, respectively, for the second quarter of 1996, compared to $0.8 million
and $0.6 million, respectively, during the same quarter of 1995. Lease revenues
decreased due to the off-lease status of an aircraft in 1996. Direct expenses
decreased due to the costs incurred in the second quarter of 1995 to refurbish
another aircraft prior to being re-leased;
Trailers: Trailer lease revenues and direct expenses were $1.0 million and $0.1
million, respectively, for the second quarter of 1996, compared to $1.3 million
and $0.1 million, respectively, during the same quarter of 1995. The decrease
was due to the sale of 102 trailers in the second quarter of 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 $1.2 million and
$0.4 million, respectively, for the second quarter of 1996, compared to $1.2
million and $0.2 million, respectively, during the same quarter of 1995.
Although the railcar fleet remained relatively the same size for both quarters,
the decrease in railcar contribution resulted from running repairs required on
certain of the railcars during 1996 which were not needed during 1995;
Marine containers: Marine container lease revenues were $0.3 million and $0.4
million during the second 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 remained constant from the second quarter ended June 30,
1995 to the same period in 1996. Although indirect expenses remained relatively
the same, depreciation and amortization expenses increased slightly offset by
decreases in interest and administrative expenses.
(C) Net gain on disposition of owned equipment
Net gain on disposition of equipment for the second quarter of 1996 totaled $0.1
million which resulted from the disposal or sale of 102 trailers, 73 marine
containers and two railcars with an aggregate net book value of $0.4 million,
for aggregate proceeds of $0.5 million. For the same period in 1995, the $0.2
million net gain on disposition of equipment resulted from the sale or disposal
of the eight trailers, one tractor, 79 marine containers, and one railcar, with
an aggregate net book value of $0.2 million, for proceeds of $0.4 million.
(D) 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 three months
ended June 30,
1996 1995
----------------------------
<S> <C> <C>
Aircraft $ 49 $ 95
Mobile offshore drilling unit (71 ) (93 )
Marine vessel -- 376
</TABLE>
Aircraft: As of June 30, 1996 and 1995, the Partnership owned a 50%-interest in
a commercial aircraft. Aircraft lease revenues and expenses remained relatively
the same from the second quarter of 1996 compared to the same period in 1995.
During 1995, the Partnership also had a 50% investment in a DC-9 aircraft which
was sold during the second quarter. The sale generated a gain of $0.1 million.
Mobile offshore drilling unit: As of June 30, 1996 and 1995, the Partnership
owned a 55% interest in a mobile offshore drilling unit (rig). The Partnership's
share of revenue decreased $0.1 million from the second quarter of 1996 compared
to the same period in 1995 due to the rig being off-lease for a month in 1996.
Expenses remained relatively the same for both periods.
Marine vessel: In the second quarter of 1995, the Partnership sold it's 50%
interest in a marine vessel.
(E) Net Income (loss)
As a result of the foregoing, the Partnership's net loss of $33,000 for the
second quarter of 1996, decreased from net income of $0.7 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 second quarter of 1996, the Partnership distributed $1.8 million to the
Unitholders, or $0.25 per Depositary Unit.
Comparison of the Partnership's Operating Results for the Six Months Ended
June 30, 1996 and 1995
(A) Owned equipment operations
Lease revenues less direct expenses (defined as repairs and maintenance, marine
equipment operating, and asset specific insurance expenses) on owned equipment
decreased during the six months ended June 30, 1996 when compared to the same
period of 1995. The following table presents lease revenues less direct expenses
by owned equipment type (in thousands):
<TABLE>
<CAPTION>
For the six months
ended June 30,
1996 1995
----------------------------
<S> <C> <C>
Aircraft $ 1,191 $ 778
Trailers 1,784 2,409
Rail equipment 1,707 1,873
Marine containers 699 897
</TABLE>
Aircraft: Aircraft lease revenues and direct expenses were $1.2 million and
$0.0, respectively, for the six months ended June 30, 1996, compared to $1.4
million and $0.6 million, respectively, during the same period of 1995. Lease
revenues decreased due to the off-lease status of an aircraft in 1996. Direct
expenses decreased due to the costs incurred in the six months ended June 30,
1995 to refurbish another aircraft prior to being re-leased in 1995;
Trailers: Trailer lease revenues and direct expenses were $2.1 million and $0.3
million, respectively, for the six months ended June 30, 1996, compared to $2.7
million and $0.3 million, respectively, during the same period of 1995. The
decrease in net contribution was due to the sale of 102 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 $2.4 million and
$0.7 million, respectively, for the six months ended June 30, 1996, compared to
$2.4 million and $0.5 million, respectively during the same period of 1995.
Although the railcar fleet remained relatively the same size for both periods,
the decrease in railcar contribution resulted from running repairs required on
certain of the railcars during 1996 which were not needed during 1995;
Marine containers: Marine container lease revenues were $0.7 million and $0.9
million for the six months ended June 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 $5.4 million for the six months ended June 30, 1996,
decreased from $5.9 million for the same period in 1995. The variances are
explained as follows:
(a) A $0.1 million decrease in depreciation and amortization expense from
1995 levels, reflecting the effect of asset sales in 1995 and 1996;
(b) A $0.3 million decrease in interest expense due to a lower base rate of
interest charged on the Partnership's floating rate debt during the six months
ended June 30, 1996 as compared to the same period in 1995. 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 professional services required by the Partnership.
(C) Net gain on disposition of owned equipment
Net gain on disposition of equipment for the six months ended June 30, 1996
totaled $0.2 million which resulted from the sale or disposal of 143 marine
containers, 106 trailers, and three railcars, with an aggregate net book value
of $0.5 million for aggregate proceeds of $0.7 million. For the six months ended
June 30, 1995, the $0.3 million net gain on disposition of equipment resulted
from the sale or disposal of 140 marine containers, eight trailers, one tractor,
and one railcar with an aggregate net book value of $0.3 million, for aggregate
proceeds of $0.6 million.
(D) Interest and other income
Interest and other income decreased $0.1 million during the six months ended
June 30, 1996 due primarily to lower cash balances available for investments
when compared to the same period of 1995.
(E) Equity in net 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 six months
ended June 30,
1996 1995
----------------------------
<S> <C> <C>
Aircraft $ (312 ) $ 158
Mobile offshore drilling unit (112 ) (143 )
Marine vessel -- 355
</TABLE>
Aircraft: As of June 30, 1996 and 1995, the Partnership owned a 50% interest in
a commercial aircraft. Aircraft lease revenue remained relatively the same from
the six months ended June 30, 1996 compared to the same period in 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 aicraft's lessee that encountered
financial difficulties.
During 1995, the Partnership also had a 50% investment in a DC-9 aircraft which
was sold during the second quarter. The sale generated a gain of $0.1 million.
Mobile offshore drilling unit: As of June 30, 1996, the Partnership owned a
55%-interest in a mobile offshore drilling unit (rig). Revenue decreased $0.1
million from the six months ended June 30, 1996, compared to the same period in
1995, due to the rig being off-lease for a month in 1996. Expenses remained
relatively the same for both periods.
Marine vessel: In the second quarter of 1995, the Partnership sold it's 50%
interest in a marine vessel.
(E) Net Income (loss)
As a result of the foregoing, the Partnership's net loss of $0.1 million for the
six months ended June 30, 1996, decreased from net income of $0.9 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 first quarter 1996 is not necessarily indicative of future
periods. In the six months ended June 30, 1996, the Partnership distributed $4.8
million to the Unitholders, or $0.65 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 $27.0 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 1995, the Partnership used $8.0 million in proceeds from the sale of
equipment and other cash on hand to prepay the first annual $4 million principal
installment of the loan due March 31, 1996, and to prepay the second annual $4
million installment due March 31, 1997.
In June 1996, the Committed Bridge Facility was revised and PLM Equipment Growth
Fund II is no longer included as a borrower.
For the six months ended June 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 $5.1 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 six months ended June 30, 1996, the Partnership
had purchased and canceled 42,100 Depositary Units at a cost of $0.2 million. As
of June 30, 1996, the Partnership had cumulatively repurchased 102,700
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. Alternatively,
the General Partner may make a determination to enter equipment markets in which
it perceives opportunities to profit from supply-demand instabilities or other
market imperfections.
The Partnership intends to use 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: August 9, 1996 By: /s/ David J. Davis
------------------
David J. Davis
Vice President and
Corporate Controller
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,180
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0
0
<OTHER-SE> 12,830
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<SALES> 6,381
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<CGS> 0
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<INCOME-PRETAX> (117)
<INCOME-TAX> 0
<INCOME-CONTINUING> (117)
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