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
March 31, 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>
March 31, December 31,
1998 1997
-------------------------------
<S> <C> <C>
Assets
Equipment held for operating lease, at cost $ 40,920 $ 50,707
Less accumulated depreciation (29,802) (38,170)
-------------------------------
11,118 12,537
Equipment held for sale 364 788
Net equipment 11,482 13,325
Cash and cash equivalents 4,692 556
Restricted cash -- 395
Accounts receivable, less allowance for doubtful
accounts of $69 in 1998 and $1,146 in 1997 1,255 1,626
Investments in unconsolidated special-purpose entities 1,193 2,680
Prepaid expenses and other assets 34 49
Total assets $ 18,656 $ 18,631
===============================
Liabilities and partners' capital
Liabilities:
Accounts payable and accrued expenses $ 382 $ 365
Due to affiliates 108 195
Lessee deposits and reserve for repairs 1,144 1,846
Notes payable -- 2,500
-------------------------------
Total liabilities 1,634 4,906
-------------------------------
Partners' capital:
Limited partners (7,381,805 depositary units as of
December 31, 1997 and 1996) 17,022 13,725
General Partner -- --
-------------------------------
Total partners' capital 17,022 13,725
-------------------------------
Total liabilities and partners' capital $ 18,656 $ 18,631
===============================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND II
A Limited Partnership
STATEMENTS OF INCOME
For the Three Months Ended March 31,
(in thousands of dollars, except weighted-average unit amounts)
<TABLE>
<CAPTION>
1998 1997
-------------------------------
<S> <C> <C>
Revenues
Lease revenue $ 1,876 $ 3,038
Interest and other income 72 81
Net gain on disposition of equipment 4,245 168
--------------------------------
Total revenues 6,193 3,287
Expenses
Depreciation and amortization 714 1,223
Repairs and maintenance 445 376
Interest expense 47 233
Insurance expense 22 30
Management fees to affiliate 98 128
General and administrative expenses to affiliates 123 214
Other general and administrative expenses 258 252
(Recovery of) provision for bad debt (88 ) 326
--------------------------------
Total expenses 1,619 2,782
Equity in net loss of unconsolidated special-
purpose entities (112 ) (116)
--------------------------------
Net income $ 4,462 $ 389
================================
Partners' share of net income
Limited partners $ 4,404 $ 255
General Partner 58 134
--------------------------------
Total $ 4,462 $ 389
================================
Net income per weighted-average depositary unit
(7,381,805 units as of March 31, 1998 and 1997) $ 0.60 $ 0.03
================================
Cash distribution $ 1,165 $ 1,942
================================
Cash distribution per weighted-average depositary unit $ 0.15 $ 0.25
================================
</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 March 31, 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 distribution (5,905 ) (311 ) (6,216)
Partners' capital as of December 31, 1997 13,725 -- 13,725
Net income 4,404 58 4,462
Cash distribution (1,107 ) (58 ) (1,165)
--------------------------------------------------------
Partners' capital as of March 31, 1998 $ 17,022 $ -- $ 17,022
========================================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND II
A Limited Partnership
STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, (in thousands of
dollars)
<TABLE>
<CAPTION>
1998 1997
---------------------------------------
<S> <C> <C>
Operating activities
Net income $ 4,462 $ 389
Adjustments to reconcile net income to net cash provided
by operating activities:
Net gain on disposition of equipment (4,245 ) (168 )
Depreciation and amortization 714 1,223
Equity in net loss from unconsolidated special-purpose entities 112 116
Changes in operating assets and liabilities:
Restricted cash 395 --
Accounts receivable, net 396 (196 )
Prepaid expenses and other assets 15 16
Accounts payable and accrued expenses 17 47
Due to affiliates (87 ) 2
Lessee deposits and reserve for repairs (702 ) 183
---------------------------------------
Net cash provided by operating activities 1,077 1,612
---------------------------------------
Investing activities
Proceeds from disposition of equipment 5,349 544
Liquidation distributions from unconsolidated special-purpose entities 1,425 --
Additional investments in unconsolidated special-purpose entities (50 ) (62 )
---------------------------------------
Net cash provided by investing activities 6,724 482
---------------------------------------
Financing activities
Principal payments on notes payable (2,500 ) (2,500 )
Cash distribution paid to limited partners (1,107 ) (1,845 )
Cash distribution paid to General Partner (58 ) (97 )
---------------------------------------
Net cash used in financing activities (3,665 ) (4,442 )
---------------------------------------
Net increase (decrease) in cash and cash equivalents 4,136 (2,348 )
Cash and cash equivalents at beginning of period 556 7,962
---------------------------------------
Cash and cash equivalents at end of period $ 4,692 $ 5,614
=======================================
Supplemental information
Interest paid $ 47 $ 232
=======================================
Sale proceeds included in accounts receivable $ 25 $ --
=======================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND II
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
March 31, 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 March 31, 1998 and December 31, 1997, the
statements of income for the three months ended March 31, 1998 and 1997,
the statements of changes in partners' capital for the period from December
31, 1996 to March 31, 1998, and the statements of cash flows for the three
months ended March 31, 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 Distribution
Cash distributions are recorded when paid and totaled $1.2 million and $1.9
million for the three months ended March 31, 1998 and 1997, 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 $0 million and $1.6 million for the three months ended March
31, 1998 and 1997, respectively, were deemed to be a return of capital.
Cash distributions related to the results from the first quarter of 1998 of
$1.3 million, are payable during May 1998. In addition, the Partnership
made a special distribution of $5.0 million during May 1998.
3. Transactions with General Partner and Affiliates
Partnership management fees of $0.1 million and $0.2 million were payable
as of March 31, 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 $5,000 and $0 for the three months ended March 31,
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>
March 31, December 31,
1998 1997
-------------------------------------
<S> <C> <C>
Rail equipment $ 17,345 $ 17,401
Trailers 15,780 17,144
Marine containers 7,795 8,308
Aircraft -- 7,854
----------------------------------------
40,920 50,707
Less accumulated depreciation (29,802) (38,170)
11,118 12,537
Equipment held for sale 364 788
Net equipment $ 11,482 $ 13,325
========================================
</TABLE>
<PAGE>
PLM EQUIPMENT GROWTH FUND II
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
4. Equipment (continued)
As of March 31, 1998, all equipment was either on lease or operating in
PLM-affiliated short-term trailer rental facilities, except for 147 marine
containers and 2 railcars with an aggregate net book value of $0.3 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 railcars with an aggregate net book value of $0.4 million.
During the quarter ended March 31, 1998, the Partnership sold or disposed
an aircraft, marine containers, trailers, and railcars, with an aggregate
net book value of $1.1 million, for proceeds of $5.3 million. For the
quarter ended March 31, 1997, the Partnership sold or disposed of marine
containers, trailers, and a railcar, with an aggregate net book value of
$0.4 million, for proceeds of $0.5 million.
5. Investments in Unconsolidated Special-Purpose Entities
The net investments in USPE included the following jointly-owned equipment
(and related assets and liabilities) (in thousands of dollars):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------------------------------------
<S> <C> <C>
23% interest in a Boeing 727-200 aircraft $ -- $ 1,445
50% interest in a Boeing 727-200 aircraft 1,193 1,235
---------------------------------------
Net investments $ 1,193 $ 2,680
=======================================
</TABLE>
During the three months ended March 31, 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 at March 31, 1998 and December 31, 1997.
6. Notes Payable
During the first quarter of 1998, the Partnership prepaid the $2.5 million
remaining outstanding notes payable.
<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
March 31, 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 first
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 March 31,
1998 1997
-------------------------------
<S> <C> <C>
Rail equipment $ 772 $ 925
Trailers 532 795
Marine containers 97 301
Aircraft 15 620
</TABLE>
Rail equipment: Railcar lease revenues and direct expenses were $1.1 million and
$0.3 million, respectively, for the first quarter of 1998, compared to $1.2
million and $0.3 million, respectively, during the same quarter of 1997. Railcar
contribution decreased in the first quarter of 1998, compared to the same
quarter of 1997, due to the sale of railcars in 1998 and 1997.
Trailers: Trailer lease revenues and direct expenses were $0.7 million and $0.2
million, respectively, for the first quarter of 1998, compared to $0.9 million
and $0.1 million, respectively, during the same quarter of 1997. The decrease
was primarily due to the sale of trailers in 1998 and 1997.
Marine containers: Marine container lease revenues were $0.1 million and $0.3
million during the first quarter of 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 revenues.
Aircraft: Aircraft lease revenues and direct expenses were $33,000 and $18,000,
respectively, for the first quarter of 1998, compared to $0.6 million and
$10,000, respectively, during the same quarter of 1997. Aircraft contribution
decreased in the first quarter of 1998, compared to the same quarter of 1997,
due to the sale of three aircraft in 1998 and 1997.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $1.2 million for the first quarter of 1998 decreased
from $2.4 million for the same quarter in 1997. The variances are explained as
follows:
(i) A $0.5 million decrease in depreciation and amortization expense from
1997 levels reflects the effect of asset sales in 1998 and 1997.
(ii) A $0.2 million decrease in interest expense is due to lower average
debt outstanding during the first quarter of 1998 when compared to the same
quarter in 1997.
(iii) The $0.4 million decrease in bad debt expense is due to a $0.1
million decrease in reserve for a certain lessee resulting from the application
of security deposits against uncollected outstanding receivable, and the
collection of $0.3 million in outstanding receivables from certain lessees that
were reserved for as bad debts in 1997.
(iv) A $0.1 million decrease in administrative expenses from 1997 levels
due to reduced professional services required by the Partnership.
<PAGE>
(c) Net Gain on Disposition of Owned Equipment
Net gain on disposition of equipment for the first quarter of 1998 totaled $4.2
million, and resulted from the disposal or sale of an aircraft, trailers, marine
containers, and railcars, with an aggregate net book value of $1.1 million, for
aggregate proceeds of $5.3 million. For the same quarter in 1997, the $0.2
million net gain on disposition of equipment resulted from the sale or disposal
of the trailers, marine containers, and a railcar, with an aggregate net book
value of $0.4 million, for aggregate proceeds of $0.5 million.
(d) Equity in Net Loss of Unconsolidated Special-Purpose Entities
Equity in net loss of unconsolidated special-purpose entities (USPEs) represents
net loss generated from the operation of jointly-owned assets accounted for
under the equity method (see Note 5 to the financial statements).
As of March 31, 1998 and 1997, the Partnership owned a 50% interest in an entity
which owns a commercial aircraft that was off lease during the first quarter of
1998 and 1997. Expenses were $0.1 million for the first quarter of 1998 and
1997. 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.
(e) Net Income
As a result of the foregoing, the Partnership's net income was $4.5 million for
the first quarter of 1998, compared to net income of $0.4 million during the
first quarter of 1997. The Partnership's ability to operate and liquidate
assets, secure leases, and re-lease those assets whose leases expire is subject
to many factors, and the Partnership's performance in the first quarter of 1998
is not necessarily indicative of future periods. In the first quarter of 1998,
the Partnership distributed $1.1 million to the limited partners, or $0.15 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 March 31, 1998, the
Partnership has 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 first quarter of 1998, the Partnership used $2.5 million in proceeds from
the sale of assets to prepay the outstanding debt.
For the quarter ended March 31, 1998, the Partnership generated $1.1 million in
operating cash (net cash provided by operating activities plus distributions
from unconsolidated special-purpose entities) to meet its operating obligations,
but used undistributed available cash from prior periods of approximately $0.1
to maintain the level of distributions (total of $1.2 million in the first
quarter of 1998) to the partners.
During the quarter ended March 31, 1998, the Partnership sold or disposed of
aircraft, marine containers, trailers, and railcars, with an aggregate net book
value of $1.1 million, for proceeds of $5.3 million.
Equipment sales have and will continue to reduce overall lease revenues in the
Partnership to the extent that further reductions in distribution levels may
become necessary. In addition, with the Partnership in active liquidation phase,
the size of the Partnership's remaining equipment portfolio and, in turn, the
amount of net cash flows from operations will continue to become progressively
smaller as assets are sold. Although distribution levels may be reduced,
significant asset sales may result in potential special distributions to the
partners.
<PAGE>
(III) YEAR 2000 COMPLIANCE
The General Partner is currently addressing the Year 2000 computer software
issue. The General Partner is creating a timetable for carrying out any program
modifications that may be required. The General Partner does not anticipate that
the cost of these modifications allocable to the Partnership will be material.
(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.
(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. The General Partner anticipates the
liquidation of Partnership assets will be completed by the scheduled termination
of the Partnership at the end of the year 2000.
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 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 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.
<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: May 12, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,692
<SECURITIES> 0
<RECEIVABLES> 1,324
<ALLOWANCES> 69
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 40,920
<DEPRECIATION> 29,802
<TOTAL-ASSETS> 18,656
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 17,022
<TOTAL-LIABILITY-AND-EQUITY> 18,656
<SALES> 0
<TOTAL-REVENUES> 6,193
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,660
<LOSS-PROVISION> 88
<INTEREST-EXPENSE> 47
<INCOME-PRETAX> 4,462
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,462
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,462
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.60
</TABLE>
