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, 1998
[ ] 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 1-10553
-----------------------
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, except per unit amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---------------------------------------
<S> <C> <C>
Assets
Equipment held for operating lease, at cost $ 36,705 $ 50,707
Less accumulated depreciation (27,134) (38,170 )
---------------------------------------
9,571 12,537
Equipment held for sale -- 788
Net equipment 9,571 13,325
Cash and cash equivalents 3,235 556
Restricted cash -- 395
Accounts receivable, less allowance for doubtful
accounts of $85 in 1998 and $1,146 in 1997 1,014 1,626
Investments in unconsolidated special-purpose entities 464 2,680
Prepaid expenses and other assets 3 49
Total assets $ 14,287 $ 18,631
=======================================
Liabilities and partners' capital
Liabilities:
Accounts payable and accrued expenses $ 372 $ 365
Due to affiliates 75 195
Lessee deposits and reserve for repairs 782 1,846
Notes payable -- 2,500
---------------------------------------
Total liabilities 1,229 4,906
---------------------------------------
Partners' capital:
Limited partners (7,381,805 depositary units as of September 30,
1998 and December 31, 1997, respectively) 13,058 13,725
General Partner -- --
---------------------------------------
Total partners' capital 13,058 13,725
---------------------------------------
Total liabilities and partners' capital $ 14,287 $ 18,631
=======================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND II
A Limited Partnership
STATEMENTS OF INCOME
(in thousands of dollars, except weighted-average unit amounts)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Lease revenue $ 1,872 $ 2,606 $ 5,569 $ 8,112
Interest and other income 49 51 175 195
Net gain on disposition of equipment 313 336 5,921 1,363
-------------------------------------------------------------------
Total revenues 2,234 2,993 11,665 9,670
-------------------------------------------------------------------
Expenses
Depreciation and amortization 573 1,014 1,899 3,387
Repairs and maintenance 420 483 1,416 1,288
Interest expense -- 140 47 566
Insurance expense to affiliate -- -- 24 --
Other insurance expense 16 25 56 98
Management fees to affiliate 103 119 291 375
General and administrative expenses
to affiliates 92 157 336 529
Other general and administrative expenses 152 248 607 740
Provision for (recovery of) bad debt 5 310 (68) 538
-------------------------------------------------------------------
Total expenses 1,361 2,496 4,608 7,521
-------------------------------------------------------------------
Equity in net income (loss) of unconsolidated
special-purpose entities (119) 12 (371) (1,029)
-------------------------------------------------------------------
Net income $ 754 $ 509 $ 6,686 $ 1,120
===================================================================
Partners' share of net income
Limited partners $ 697 $ 388 $ 6,318 $ 722
General Partner 57 121 368 398
-------------------------------------------------------------------
Total $ 754 $ 509 $ 6,686 $ 1,120
===================================================================
Net income per weighted-average
depositary unit $ 0.09 $ 0.05 $ 0.86 $ 0.10
===================================================================
Cash distributions $ 1,137 $ 1,166 $ 3,468 $ 5,051
===================================================================
Cash distributions per weighted-average
depositary unit $ 0.15 $ 0.15 $ 0.45 $ 0.65
===================================================================
Special cash distributions $ -- $ -- $ 3,885 $ --
===================================================================
Special cash distributions per weighted-
average depositary unit $ -- $ -- $ 0.50 $ --
===================================================================
Total cash distributions per weighted-
average depositary unit $ 0.15 $ 0.15 $ 0.95 $ 0.65
===================================================================
</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, 1996
to September 30, 1998 (in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
-------------------------------------------------------
<S> <C> <C> <C>
Partners' capital (deficit) as of December 31, 1996 $ 17,434 $ (188 ) $ 17,246
Net income 2,196 499 2,695
Cash distributions (5,905 ) (311 ) (6,216)
Partners' capital as of December 31, 1997 13,725 -- 13,725
Net income 6,318 368 6,686
Cash distributions (3,294 ) (174 ) (3,468)
Special cash distributions (3,691 ) (194 ) (3,885)
Partners' capital as of September 30, 1998 $ 13,058 $ -- $ 13,058
========================================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND II
A Limited Partnership
STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, (in thousands
of dollars)
<TABLE>
<CAPTION>
1998 1997
---------------------------------------
<S> <C> <C>
Operating activities
Net income $ 6,686 $ 1,120
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Net gain on disposition of equipment (5,921 ) (1,363 )
Depreciation and amortization 1,899 3,387
Equity in net loss from unconsolidated special-purpose entities 371 1,029
Changes in operating assets and liabilities:
Restricted cash 395 --
Accounts receivable, net 629 (856 )
Prepaid expenses and other assets 46 1,003
Accounts payable and accrued expenses 7 84
Due to affiliates (120 ) 66
Lessee deposits and reserve for repairs (1,064 ) (1,070 )
---------------------------------------
Net cash provided by operating activities 2,928 3,400
---------------------------------------
Investing activities
Proceeds from disposition of equipment 7,759 4,185
Liquidation distributions from unconsolidated special-purpose entities 1,425 --
Reimbursements of capital improvements -- (23 )
Distributions from (additional investments in) unconsolidated
special-purpose entities 420 16
---------------------------------------
Net cash provided by investing activities 9,604 4,178
---------------------------------------
Financing activities
Principal payments on notes payable (2,500 ) (7,217 )
Cash distributions paid to limited partners (6,985 ) (4,798 )
Cash distributions paid to General Partner (368 ) (253 )
---------------------------------------
Net cash used in financing activities (9,853 ) (12,268 )
---------------------------------------
Net increase (decrease) in cash and cash equivalents 2,679 (4,690 )
Cash and cash equivalents at beginning of period 556 7,962
---------------------------------------
Cash and cash equivalents at end of period $ 3,235 $ 3,272
=======================================
Supplemental information
Interest paid $ 47 $ 508
=======================================
Sale proceeds included in accounts receivable $ 17 $ 55
=======================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND II
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
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, 1998 and December 31, 1997,
the statements of income for the three and nine months ended September 30,
1998 and 1997, the statements of changes in partners' capital for the
period from December 31, 1996 to September 30, 1998, and the statements of
cash flows for the nine months ended September 30, 1998 and 1997. 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, 1997, on file at the
Securities and Exchange Commission.
2. Cash Distributions
Cash distributions are recorded when paid and totaled $3.5 million and $5.1
million for the nine months ended September 30, 1998 and 1997,
respectively, and $1.1 million and $1.2 million for the three months ended
September 30, 1998 and 1997, respectively. In addition, a $3.9 million
special distribution was paid to the partners during the nine months ended
September 30, 1998 from the proceeds realized on the sale of equipment in
1998 and 1997. Cash distributions to limited partners in excess of net
income are considered to represent a return of capital. Cash distributions
to limited partners of $0.7 million and $4.1 million for the nine months
ended September 30, 1998 and 1997, respectively, were deemed to be a return
of capital. Cash distributions related to the results from the third
quarter of 1998, of $1.1 million, are payable during November 1998.
3. Transactions with General Partner and Affiliates
Partnership management fees of $0.1 million and $0.2 million were payable
as of September 30, 1998 and December 31, 1997, respectively.
The Partnership's proportional share of the data processing and
administrative expenses incurred by the unconsolidated special-purpose entities
(USPEs) was $10,000 and $5,000 for the nine months ended September 30, 1998 and
1997, respectively, and $0 and $1,000 for the three months ended September 30,
1998 and 1997, respectively.
4. Equipment
Owned equipment held for operating lease is stated at cost. The components
of owned equipment held for operating lease are as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------------------------------------
<S> <C> <C>
Rail equipment $ 17,345 $ 17,401
Trailers 12,135 17,144
Marine containers 7,225 8,308
Aircraft -- 7,854
----------------------------------------
36,705 50,707
Less accumulated depreciation (27,134 ) (38,170)
9,571 12,537
Equipment held for sale -- 788
Net equipment $ 9,571 $ 13,325
========================================
</TABLE>
<PAGE>
PLM EQUIPMENT GROWTH FUND II
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
4. Equipment (continued)
As of September 30, 1998, all equipment was either on lease or operating in
PLM-affiliated short-term trailer rental facilities, except for 120 marine
containers and 3 rail equipment with an aggregate net book value of $0.2
million. As of December 31, 1997, all equipment was either on lease or operating
in PLM-affiliated short-term trailer rental facilities, except for 168 marine
containers and 3 rail equipment with an aggregate net book value of $0.4
million.
During the nine months ended September 30, 1998, the Partnership sold or
disposed of an aircraft, marine containers, trailers, and rail equipment, with
an aggregate net book value of $1.9 million, for proceeds of $7.8 million. For
the nine months ended September 30, 1997, the Partnership sold or disposed of an
aircraft, marine containers, trailers, and rail equipment, with an aggregate net
book value of $2.9 million, for proceeds of $4.3 million.
5. Investments in Unconsolidated Special-Purpose Entities
The net investments in USPEs included the following jointly-owned equipment
(and related assets and liabilities) (in thousands of dollars):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---------------------------------------
<S> <C> <C>
50% interest in a Boeing 727-200 aircraft $ 464 $ 1,235
23% interest in a Boeing 727-200 aircraft -- 1,445
Net investments $ 464 $ 2,680
=======================================
</TABLE>
During the nine months ended September 30, 1998, the General Partner sold a
Boeing 727-200 aircraft in which the Partnership owned a 23% interest, at
approximately its net book value. The Partnership received liquidating
distributions of $1.4 million from this USPE during the first quarter of 1998.
The Partnership's 50% investment in a commercial aircraft was off-lease as of
September 30, 1998 and December 31, 1997.
6. Notes Payable
During the nine months ended September 30, 1998, the Partnership prepaid
the $2.5 million remaining outstanding notes payable.
7. Net Income Per Weighted-Average Depositary Unit
Net income per weighted-average depositary unit was computed by dividing
net income attributable to limited partners by the weighted-average number of
depositary units deemed outstanding during the period. The weighted-average
number of depositary units deemed outstanding during the three and nine months
ended September 30, 1998 and 1997 was 7,381,805, including 1,150 units held in
the Treasury.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(I) RESULTS OF OPERATIONS
Comparison of the PLM Equipment Growth Fund II's (the Partnership's) Operating
Results for the Three Months Ended September 30, 1998 and 1997
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance and
asset-specific insurance expenses) on owned equipment decreased during the third
quarter of 1998 when compared to the same quarter of 1997. The following table
presents lease revenues less direct expenses by owned equipment type (in
thousands of dollars):
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
1998 1997
-------------------------------
<S> <C> <C>
Rail equipment $ 856 $ 795
Trailers 547 697
Marine containers 42 154
Aircraft (2) 459
</TABLE>
Rail equipment: Rail equipment lease revenues and direct expenses were $1.1
million and $0.3 million, respectively, for the third quarter of 1998 and 1997.
Railcar contribution increased during the third quarter of 1998 due to lower
repairs required during 1998 when compared to the same period of 1997.
Trailers: Trailer lease revenues and direct expenses were $0.7 million and $0.2
million, respectively, for the third quarter of 1998, compared to $0.9 million
and $0.2 million, respectively, during the same quarter of 1997. The number of
trailers owned by the Partnership has been declining over the past twelve months
due to sales and dispositions. The result of this declining fleet was a decrease
in trailer contribution.
Marine containers: Marine container lease revenues and direct expenses were
$43,000 and $1,000, respectively, for the third quarter of 1998, compared to
$0.2 million and $3,000, respectively, during the same quarter of 1997. 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 revenues.
Aircraft: Aircraft lease revenues and direct expenses were $0 and $2,000,
respectively, for the third quarter of 1998, compared to $0.5 million and
$10,000, respectively, during the same quarter of 1997. Aircraft contribution
decreased in the third quarter of 1998, compared to the same quarter of 1997,
due to the sale of the remaining aircraft fleet in 1998 and 1997.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $0.9 million for the third quarter of 1998 decreased
from $2.0 million for the same quarter in 1997. The variances are explained as
follows:
(i) A $0.4 million decrease in depreciation and amortization expense from
1997 levels reflects the effect of asset sales in 1998 and 1997.
(ii) The $0.3 million decrease in bad debt expense was due to a decrease in
the General Partner's evaluation of the collectibility of receivables due from
certain lessees.
(iii) A $0.2 million decrease in administrative expenses from 1997 levels
was due to reduced office expenses and professional services required by the
Partnership, resulting primarily from the reduced equipment portfolio.
(iv) A $0.1 million decrease in interest expense was due to the repayment
of the Partnership's outstanding debt.
(c) Net Gain on Disposition of Owned Equipment
The net gain on disposition of equipment for the third quarter of 1998 totaled
$0.3 million, and resulted from the disposal or sale of trailers and marine
containers, with an aggregate net book value of $0.1 million, for aggregate
proceeds of $0.4 million. For the same quarter in 1997, the $0.3 million net
gain on disposition of equipment resulted from the sale or disposal of an
aircraft, trailers, marine containers, and rail equipment, with an aggregate net
book value of $1.2 million, for aggregate proceeds of $1.5 million.
(d) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
Equity in net income (loss) of USPEs represents net income (loss) generated from
the operation of jointly-owned assets accounted for under the equity method (see
Note 5 to the financial statements).
As of September 30, 1998 and 1997, the Partnership owned a 50% interest in an
entity which owns a commercial aircraft that was off lease during the third
quarter of 1998 and 1997. Expenses were $0.1 for the third quarter of 1998,
compared to revenues and expenses of $0.1 million and $0.1 million,
respectively, for the same period in 1997.
(e) Net Income
As a result of the foregoing, the Partnership's net income was $0.8 million for
the third quarter of 1998, compared to net income of $0.5 million during the
third quarter of 1997. The Partnership's ability to operate and liquidate assets
and to re-lease those assets whose leases expire is subject to many factors, and
the Partnership's performance in the third quarter of 1998 is not necessarily
indicative of future periods. In the third quarter of 1998, the Partnership made
regular cash distributions of $1.1 million to the limited partners, or $0.15 per
weighted-average depositary unit.
Comparison of the Partnership's Operating Results for the Nine Months Ended
September 30, 1998 and 1997
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance, and
asset-specific insurance expenses) on owned equipment decreased during the nine
months ended September 30, 1998, compared to the same period of 1997. The
following table presents lease revenues less direct expenses by owned equipment
type (in thousands of dollars):
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1998 1997
-------------------------------
<S> <C> <C>
Rail equipment $ 2,317 $ 2,596
Trailers 1,581 1,973
Marine containers 172 538
Aircraft 47 1,656
</TABLE>
Rail equipment: Rail equipment lease revenues and direct expenses were $3.2
million and $0.9 million, respectively, for the nine months ended September 30,
1998, compared to $3.4 million and $0.8 million, respectively, during the same
period of 1997. Lease revenues decreased due to the sale of rail equipment in
1998 and 1997. Rail equipment expenses increased due to running repairs required
on certain of the rail equipment during the nine months ended September 30,
1998, which were not needed during 1997.
Trailers: Trailer lease revenues and direct expenses were $2.1 million and $0.5
million, respectively, for the nine months ended September 30, 1998, compared to
$2.5 million and $0.5 million, respectively, during the same period of 1997. The
decrease in net contribution was primarily due to the sale of trailers in 1998
and 1997.
Marine containers: Marine container lease revenues were $0.2 million and $0.5
million for the nine months ended September 30, 1998 and 1997, 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.
Aircraft: Aircraft lease revenues and direct expenses were $0.1 million and
$36,000, respectively, for the nine months ended September 30, 1998, compared to
$1.7 million and $30,000, respectively, during the same period of 1997. Aircraft
contribution decreased in the nine months ended September 30, 1998, compared to
the same period in 1997, due to the sale of the remaining aircraft fleet in 1998
and 1997.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $3.1 million for the nine months ended September 30,
1998 decreased from $6.1 million for the same period of 1997. The variances are
explained as follows:
(i) A $1.5 million decrease in depreciation and amortization expense from
1997 levels reflects the effect of asset sales in 1998 and 1997.
(ii) A $0.6 million decrease in bad debt expense was due to a $0.1 million
decrease in reserve for a certain lessee resulting from the application of
security deposits against uncollected outstanding receivables, the collection of
$0.2 million in 1998 of outstanding receivables from certain lessees that were
previously reserved for as bad debts in 1997, and a $0.3 million decrease in bad
debt expense from a decrease in the General Partner's evaluation of the
collectibility of receivables due from certain lessees.
(iii) A $0.5 million decrease in interest expense was due to the repayment
of the Partnership's outstanding debt.
(iv) A $0.3 million decrease in administrative expenses from 1997 levels
was due to reduced office expenses and professional services required by the
Partnership, resulting primarily from the reduced equipment portfolio.
(v) A $0.1 million decrease in management fees to affiliates reflects the
lower levels of lease revenues in the nine months ended September 30, 1998,
compared to the same period in 1997.
(c) Net Gain on Disposition of Owned Equipment
The net gain on disposition of equipment for the nine months ended September 30,
1998 totaled $5.9 million, and resulted from the sale or disposal of an
aircraft, marine containers, trailers, and rail equipment, with an aggregate net
book value of $1.9 million, for aggregate proceeds of $7.8 million. For the nine
months ended September 30, 1997, the $1.4 million net gain on disposition of
equipment resulted from the sale or disposal of aircraft, marine containers,
trailers, and rail equipment, with an aggregate net book value of $2.9 million,
for aggregate proceeds of $4.3 million.
(d) Equity in Net Loss of Unconsolidated Special-Purpose Entities
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.
As of September 30, 1998 and 1997, the Partnership owned a 50% interest in an
entity which owns a commercial aircraft that was off lease during the nine
months ended September 30, 1998 and 1997. Expenses were $0.4 million,
respectively, for the nine months ended September 30, 1998, compared to revenues
and expenses of $0.2 million and $1.2 million, respectively, for the same period
in 1997. The Partnership's share of revenues decreased in the nine months ended
September 30, 1998 due to the sale of its 50% investment in an entity that owned
an aircraft engine in the third quarter of 1997. The Partnership's share of
expenses decreased due to repairs required during 1997, which were not required
for the same period in 1998. During the first quarter of 1998, the General
Partner sold for approximately its book value the Partnership's 23% investment
in an entity that owned an aircraft.
<PAGE>
(e) Net Income
As a result of the foregoing, the Partnership's net income was $6.7 million for
the nine months ended September 30, 1998, compared to net income of $1.1 million
during the same period of 1997. The Partnership's ability to operate and
liquidate assets and to re-lease those assets whose leases expire is subject to
many factors, and the Partnership's performance in the nine months ended
September 30, 1998 is not necessarily indicative of future periods. In the nine
months ended September 30, 1998, the Partnership distributed regular cash
distributions of $3.3 million to the limited partners, or $0.45 per
weighted-average depositary unit. In addition, the Partnership made a special
distribution of $3.7 million to the limited partners, or $0.50 per
weighted-average depositary unit.
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES AND LIQUIDITY
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 limited partnership agreement. As of September 30, 1998, the
Partnership had no outstanding indebtedness. The Partnership relies on operating
cash flow to meet its operating obligations and make cash distributions to the
limited partners.
In the nine months ended September 30, 1998, the Partnership used $2.5 million
in proceeds from the sale of assets to prepay the outstanding debt.
For the nine months ended September 30, 1998, the Partnership generated $3.3
million in operating cash (net cash provided by operating activities plus
non-liquidating distributions from unconsolidated special-purpose entities) to
meet its operating obligations, but used undistributed available cash from prior
periods of approximately $0.2 million to maintain the level of regular cash
distributions (total of $3.5 million or $0.45 per weighted average depositary
unit) in the nine months ended September 30, 1998) to the partners. During the
nine months ended September 30, 1998, the General Partner sold owned equipment
on behalf of the Partnership and realized proceeds of approximately $7.8
million. A special distribution of $3.9 million ($0.50 per weighted-average
depositary unit) was paid on May 21, 1998.
During the nine months ended September 30, 1998, the Partnership sold or
disposed of aircraft, marine containers, trailers, and rail equipment, with an
aggregate net book value of $1.9 million, for aggregate proceeds of $7.8
million.
(III) EFFECTS OF YEAR 2000
It is possible that the General Partner's currently installed computer systems,
software products and other business systems, or the Partnership's vendors,
service providers, and customers, working either alone or in conjunction with
other software or systems, may not accept input of, store, manipulate, and
output dates on or after January 1, 2000 without error or interruption (a
problem commonly known as the "Year 2000" problem). As the Partnership relies
substantially on the General Partner's software systems, applications, and
control devices in operating and monitoring significant aspects of its business,
any Year 2000 problem suffered by the General Partner could have a material
adverse effect on the Partnership's business, financial condition, and results
of operations.
The General Partner has established a special Year 2000 oversight committee to
review the impact of Year 2000 issues on its software products and other
business systems in order to determine whether such systems will retain
functionality after December 31, 1999. The General Partner (a) is currently
integrating Year 2000-compliant programming code into its existing internally
customized and internally developed transaction processing software systems and
(b) the General Partner's accounting and asset management software systems have
either already been made Year 2000-compliant or Year 2000- compliant upgrades of
such systems are planned to be implemented by the General Partner before the end
of fiscal year 1999. Although the General Partner believes that its Year 2000
compliance program can be completed by the beginning of 1999, there can be no
assurance that the compliance program will be completed by that date. To date,
the costs incurred and allocated to the Partnership to become Year 2000-
compliant have not been material. In addition, the General Partner believes the
future costs allocable to the Partnership to become Year 2000-compliant will not
be material.
Some risks associated with the Year 2000 problem are beyond the ability of the
Partnership to control, including the extent to which third parties can address
the Year 2000 problem. The General Partner has begun to communicate with
vendors, services providers, and customers in order to assess the Year 2000
compliance readiness of such parties and the extent to which the Partnership is
vulnerable to any third-party Year 2000 issues. There can be no assurance that
the software systems of such parties will be converted or made Year
2000-compliant in a timely manner. Any failure by the General Partner or such
other parties to make their respective systems Year 2000-compliant could have a
material adverse effect on the business, financial position and results of
operations of the Partnership. The General Partner will make an ongoing effort
to recognize and evaluate potential exposure relating to third-party Year 2000
non-compliance and will develop a contingency plan if the General Partner
determines, or is unable to determine, that third-party non-compliance will have
a material adverse effect on the Partnership's business, financial position, or
results of operation.
(IV) ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued two new
statements: SFAS No. 130, "Reporting Comprehensive Income," which requires
enterprises to report, by major component and in total, all changes in equity
from nonowner sources; and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for a public company's operating segments and related
disclosures about its products, services, geographic areas, and major customers.
Both statements are effective for the Partnership's fiscal year ended December
31, 1998, with earlier application permitted. The effect of adoption of these
statements will be limited to the form and content of the Partnership's
disclosures and will not impact the Partnership's results of operations, cash
flow, or financial position.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an entity
recognize those items as assets or liabilities in the statement of financial
position and measure them at fair value. This statement is effective for all
quarters of fiscal years beginning after June 15, 1999. As of September 30,
1998, the General Partner is reviewing the effect this standard will have on the
Partnership's consolidated financial statements.
(V) OUTLOOK FOR THE FUTURE
Since the Partnership is in its orderly liquidation phase, the General Partner
will be seeking to selectively re-lease or sell assets as the existing leases
expire. Sale decisions will cause the operating performance of the Partnership
to decline over the remainder of its life.
Several factors may affect the Partnership's operating performance in 1998 and
beyond, including changes in the markets for the Partnership's equipment and
changes in the regulatory environment in which that equipment operates.
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.
The ability of the Partnership to realize acceptable lease rates on its
equipment in the different equipment markets is contingent on many factors, such
as specific market conditions and economic activity, technological obsolescence,
and government or other regulations. The unpredictability of some of these
factors, or of their occurrence, makes it difficult for the General Partner to
clearly define trends or influences that may impact the performance of the
Partnership's equipment. The General Partner continually monitors both the
equipment markets and the performance of the Partnership's equipment in these
markets. The General Partner may make an evaluation to reduce the Partnership's
exposure to equipment markets in which it determines that it cannot operate
equipment and achieve acceptable rates of return.
The Partnership intends to use cash flow from operations to satisfy its
operating requirements and pay cash distributions to the investors.
(VI) FORWARD-LOOKING INFORMATION
Except for historical information contained herein, the discussion in this Form
10-Q contains forward-looking statements that involve risks and uncertainties,
such as statements of the Partnership's plans, objectives, expectations, and
intentions. The cautionary statements made in this Form 10-Q should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-Q. The Partnership's actual results could differ materially from
those discussed here.
(This space intentionally left blank.)
<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 4, 1998 By: /s/ Richard Brock
-----------------
Richard Brock
Vice President and
Corporate Controller
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,235
<SECURITIES> 0
<RECEIVABLES> 1,099
<ALLOWANCES> 85
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 36,705
<DEPRECIATION> 27,134
<TOTAL-ASSETS> 14,287
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 13,058
<TOTAL-LIABILITY-AND-EQUITY> 14,287
<SALES> 0
<TOTAL-REVENUES> 11,665
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,629
<LOSS-PROVISION> (68)
<INTEREST-EXPENSE> 47
<INCOME-PRETAX> 6,686
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,686
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,686
<EPS-PRIMARY> 0.86
<EPS-DILUTED> 0.86
</TABLE>
