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, 1999
[ ] 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 ______
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
BALANCE SHEETS
(in thousands of dollars, except unit amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------------------------------
<S> <C> <C>
ASSETS
Equipment held for operating lease, at cost $ 33,218 $ 36,212
Less accumulated depreciation (26,031) (27,223)
------------------------------------
Net equipment 7,187 8,989
Cash and cash equivalents 1,033 1,986
Accounts receivable, less allowance for doubtful
accounts of $99 in 1999 and $91 in 1998 738 975
Investment in unconsolidated special-purpose entity 527 494
Prepaid expenses and other assets 2 30
------------------------------------
Total assets $ 9,487 $ 12,474
====================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 200 $ 352
Due to affiliates 60 83
Lessee deposits and reserve for repairs 769 772
------------------------------------
Total liabilities 1,029 1,207
------------------------------------
Partners' capital:
Limited partners (7,381,805 depositary units as of September 30,
1999 and December 31, 1998, respectively) 8,458 11,267
General Partner -- --
------------------------------------
Total partners' capital 8,458 11,267
------------------------------------
Total liabilities and partners' capital $ 9,487 $ 12,474
====================================
</TABLE>
See accompanying notes to financial statements.
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,
1999 1998 1999 1998
--------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Lease revenue $ 1,477 1,872 $ 4,354 $ 5,569
Interest and other income 18 49 61 175
Net gain on disposition of equipment 27 313 260 5,921
--------------------------------------------------------------
Total revenues 1,522 2,234 4,675 11,665
--------------------------------------------------------------
EXPENSES
Depreciation 486 573 1,488 1,899
Repairs and maintenance 376 420 1,231 1,416
Interest expense -- -- -- 47
Insurance expense 9 16 27 80
Management fees to affiliate 75 103 218 291
General and administrative expenses
to affiliates 59 92 199 336
Other general and administrative expenses 173 152 490 607
Provision for (recovery of) bad debt 3 5 13 (68)
--------------------------------------------------------------
Total expenses 1,181 1,361 3,666 4,608
--------------------------------------------------------------
Equity in net loss of unconsolidated
special-purpose entities (97) (119) (409) (371)
--------------------------------------------------------------
Net income $ 244 754 $ 600 $ 6,686
==============================================================
PARTNERS' SHARE OF NET INCOME:
Limited partners $ 187 697 $ 430 $ 6,318
General Partner 57 57 170 368
--------------------------------------------------------------
Total $ 244 754 $ 600 $ 6,686
==============================================================
Net income per weighted-average depositary
unit $ 0.03 0.09 $ 0.06 $ 0.86
==============================================================
Cash distributions $ 1,136 1,137 $ 3,409 $ 3,468
Special cash distributions -- -- -- 3,885
==============================================================
Total cash distributions $ 1,136 1,137 $ 3,409 $ 7,353
==============================================================
Per weighted-average depositary unit:
Cash distributions $ 0.15 0.15 $ 0.44 $ 0.45
Special cash distributions -- -- -- 0.50
==============================================================
Total cash distributions $ 0.15 0.15 $ 0.44 $ 0.95
==============================================================
</TABLE>
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the period from December 31, 1997 to September 30, 1999
(in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
---------------------------------------------------
<S> <C> <C> <C>
Partners' capital as of December 31, 1997 $ 13,725 $ -- $ 13,725
Net income 5,606 425 6,031
Cash distribution (4,373) (231) (4,604)
Special cash distribution (3,691) (194) (3,885)
---------------------------------------------------
Partners' capital as of December 31, 1998 11,267 -- 11,267
Net income 430 170 600
Cash distribution (3,239) (170) (3,409)
---------------------------------------------------
Partners' capital as of September 30, 1999 $ 8,458 $ -- $ 8,458
===================================================
</TABLE>
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1999 1998
-----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 600 $ 6,686
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Net gain on disposition of equipment (260) (5,921)
Depreciation 1,488 1,899
Equity in net loss from unconsolidated special-purpose entities 409 371
Changes in operating assets and liabilities:
Restricted cash -- 395
Accounts receivable, net 237 629
Prepaid expenses and other assets 28 46
Accounts payable and accrued expenses (152) 7
Due to affiliates (23) (120)
Lessee deposits and reserve for repairs (3) (1,064)
-----------------------------------
Net cash provided by operating activities 2,324 2,928
-----------------------------------
INVESTING ACTIVITIES
Payments for capitalized improvements (4) --
Proceeds from disposition of equipment 578 7,759
Liquidation distributions from unconsolidated special-purpose entity -- 1,425
(Additional investments in) distributions from unconsolidated special-
purpose entities (442) 420
-----------------------------------
Net cash provided by investing activities 132 9,604
-----------------------------------
FINANCING ACTIVITIES
Principal payments on notes payable -- (2,500)
Cash distribution paid to limited partners (3,239) (6,985)
Cash distribution paid to General Partner (170) (368)
-----------------------------------
Net cash used in financing activities (3,409) (9,853)
-----------------------------------
Net (decrease) increase in cash and cash equivalents (953) 2,679
Cash and cash equivalents at beginning of period 1,986 556
-----------------------------------
Cash and cash equivalents at end of period $ 1,033 $ 3,235
===================================
SUPPLEMENTAL INFORMATION
Interest paid $ -- $ 47
===================================
</TABLE>
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
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, 1999 and December 31, 1998,
the statements of income for the three and nine months ended September 30,
1999 and 1998, the statements of changes in partners' capital for the
period from December 31, 1997 to September 30, 1999, and the statements of
cash flows for the nine months ended September 30, 1999 and 1998. Certain
information and note 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, 1998, on file at the Securities and
Exchange Commission.
2. SCHEDULE OF PARTNERSHIP PHASES
The Partnership, in accordance with its limited partnership agreement,
entered its liquidation phase on January 1, 1999, and has commenced an
orderly liquidation of the Partnership assets. The Partnership will
terminate on December 31, 2006, unless terminated earlier upon the sale of
all equiment or by certain other events. The General Partner may no longer
reinvest cash flows and surplus funds in equipment. All future cash flows
and surplus funds, if any, are to be used for distributions to partners,
except to the extent used to maintain reasonable reserves. During the
liquidation phase, the Partnership's assets will continue to be recorded at
the lower of the carrying amount or fair value less cost to sell.
3. RECLASSIFICATION
Certain amounts in the 1998 financial statements have been reclassified to
conform to the 1999 presentations.
4. CASH DISTRIBUTION
Cash distributions are recorded when paid and may include amounts in excess
of net income that are considered to represent a return of capital. For the
nine months ended September 30, 1999 and 1998, cash distributions totaled
$3.4 million and $3.5 million, respectively. For the three months ended
September 30, 1999 and 1998, cash distributions totaled $1.1 million. 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. No special distributions were
paid in the nine months ended September 30, 1999. Cash distributions to the
limited partners of $2.8 million and $0.7 million for the nine months ended
September 30, 1999 and 1998, respectively, were deemed to be a return of
capital.
Cash distributions related to the results from the third quarter of 1999 of
$1.1 million will be paid during November 1999.
5. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES
Partnership management fees of $0.1 million were payable as of September
30, 1999 and December 31, 1998.
The Partnership's proportional share of the data processing and
administrative expenses incurred by the unconsolidated special-purpose
entities (USPEs) was $5,000 and $10,000 for the nine months ended September
30, 1999 and 1998, respectively and $2,000 and $0 for the three months
ended September 30, 1999 and 1998, respectively.
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
6. EQUIPMENT
The components of owned equipment were as follows (in thousands of
dollars):
September 30, December 31,
1999 1998
------------------------------------
Railcars $ 16,315 $ 17,320
Trailers 10,984 11,884
Marine containers 5,919 7,008
------------------------------------
33,218 36,212
Less accumulated depreciation (26,031) (27,223)
-----------------------------------
Net equipment $ 7,187 $ 8,989
====================================
As of September 30, 1999, all equipment was either on lease or operating in
PLM-affiliated short-term trailer rental facilities, except for 2 marine
containers and 81 railcars with an aggregate net book value of $0.2
million. As of December 31, 1998, all equipment was either on lease or
operating in PLM-affiliated short-term trailer rental facilities, except
for 6 railcars and 115 marine containers with an aggregate net book value
of $0.2 million.
During the nine months ended September 30, 1999, the Partnership sold or
disposed of marine containers, trailers, and railcars, with an aggregate
net book value of $0.3 million, for proceeds of $0.6 million. For the nine
months ended September 30, 1998, the Partnership sold or disposed an
aircraft, marine containers, trailers, and rail equipment, with an
aggregate net book value of $1.9 million, for proceeds of $7.8 million.
7. INVESTMENT IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITY
The net investment in an USPE consisted of a 50% interest in a trust owning
a Boeing 737-200A aircraft (and related assets and liabilities) totaling
$0.5 million as of September 30, 1999 and December 31, 1998. This aircraft
was off lease as of September 30, 1999 and December 31, 1998.
(This space intentionally left blank.)
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
8. OPERATING SEGMENTS
The Partnership operates in four different segments: railcar leasing,
trailer leasing, marine container leasing and aircraft leasing. Each
equipment leasing segment engages in short-term to mid-term operating
leases to a variety of customers. The following tables present a summary of
the operating segments (in thousands of dollars):
<TABLE>
<CAPTION>
Marine
For the three months ended Railcar Trailer Container Aircraft
September 30, 1999 Leasing Leasing Leasing Leasing All <F1> Total
Other
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Lease revenue $ 880 $ 558 $ 39 $ -- $ -- $ 1,477
Interest income and other -- -- -- -- 18 18
Gain (loss) on disposition of -- 28 (1) -- -- 27
equipment
--------------------------------------------------------------
Total revenues 880 586 38 -- 18 1,522
COSTS AND EXPENSES
Operations support 187 193 1 -- 4 385
Depreciation 192 212 82 -- -- 486
Management fees 43 30 2 -- -- 75
General and administrative 53 93 3 3 80 232
expenses
Provision for (recovery of) bad 17 (14) -- -- -- 3
debts
--------------------------------------------------------------
Total costs and expenses 492 514 88 3 84 1,181
--------------------------------------------------------------
Equity in net loss of USPE -- -- -- (97) -- (97)
--------------------------------------------------------------
==============================================================
Net income (loss) $ 388 $ 72 $ (50) $ (100) $ (66) $ 244
==============================================================
Total assets as of September 30, $ 2,473 $ 4,584 $ 869 $ 526 $ 1,035 $ 9,487
1999
==============================================================
</TABLE>
<TABLE>
<CAPTION>
Marine
For the three months ended Railcar Trailer Container Aircraft
September 30, 1998 Leasing Leasing Leasing Leasing All <F1> Total
Other
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Lease revenue $ 1,133 $ 696 $ 43 $ -- $ -- $ 1,872
Interest income and other -- -- -- -- 49 49
Gain on disposition of equipment -- 304 9 -- -- 313
--------------------------------------------------------------
Total revenues 1,133 1,000 52 -- 49 2,234
COSTS AND EXPENSES
Operations support 277 149 1 2 7 436
Depreciation 204 275 94 -- -- 573
Management fees 66 35 2 -- -- 103
General and administrative 39 73 4 17 111 244
expenses
Provision for (recovery of) bad 19 (14) -- -- -- 5
debts
--------------------------------------------------------------
Total costs and expenses 605 518 101 19 118 1,361
--------------------------------------------------------------
Equity in net loss of USPE -- -- -- (119) -- (119)
--------------------------------------------------------------
==============================================================
Net income (loss) $ 528 $ 482 $ (49 )$ (138 ) $ (69 )$ 754
==============================================================
Total assets as of September 30, $ 3,356 $ 5,565 $ 1,410 $ 464 $ 3,492 $ 14,287
1998
==============================================================
_____________________________________
<FN>
<F1> Includes interest income and costs not identifiable to a particular
segment, such as interest expense, certain operations support, and general
and administrative expenses.
</FN>
</TABLE>
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
8. OPERATING SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
Marine
For the nine months ended Railcar Trailer Container Aircraft All <F1>
September 30, 1999 Leasing Leasing Leasing Leasing Other Total
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Lease revenue $ 2,681 $ 1,557 $ 116 $ -- $ -- $ 4,354
Interest income and other -- -- -- -- 61 61
Gain (loss) on disposition of 192 131 (63) -- -- 260
equipment
--------------------------------------------------------------
Total revenues 2,873 1,688 53 -- 61 4,675
COSTS AND EXPENSES
Operations support 762 482 2 -- 12 1,258
Depreciation 585 648 255 -- -- 1,488
Management fees 133 79 6 -- -- 218
General and administrative 141 226 9 5 308 689
expenses
(Recovery of) provision for bad 7 7 (1) -- -- 13
debts
--------------------------------------------------------------
Total costs and expenses 1,628 1,442 271 5 320 3,666
--------------------------------------------------------------
Equity in net loss of USPE -- -- -- (409) -- (409)
--------------------------------------------------------------
==============================================================
Net income (loss) $ 1,245 $ 246 $ (218) $ (414) $ (259) $ 600
==============================================================
Total assets as of September 30, $ 2,473 $ 4,584 $ 869 $ 526 $ 1,035 $ 9,487
1999
==============================================================
</TABLE>
<TABLE>
<CAPTION>
Marine
For the nine months ended Railcar Trailer Container Aircraft All <F1>
September 30, 1998 Leasing Leasing Leasing Leasing Other Total
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Lease revenue $ 3,209 $ 2,101 $ 176 $ 83 $ -- $ 5,569
Interest income and other -- -- -- -- 175 175
Gain (loss) on disposition of 397 746 (27) 4,805 -- 5,921
equipment
--------------------------------------------------------------
Total revenues 3,606 2,847 149 4,888 175 11,665
COSTS AND EXPENSES
Operations support 892 520 4 36 44 1,496
Depreciation 613 916 296 74 -- 1,899
Interest expense -- -- -- -- 47 47
Management fees 168 106 9 8 -- 291
General and administrative 116 354 15 31 427 943
expenses
Recovery of bad debts 18 (14) -- (72) -- (68)
--------------------------------------------------------------
Total costs and expenses 1,807 1,882 324 77 518 4,608
--------------------------------------------------------------
Equity in net loss of USPE -- -- -- (371) -- (371)
--------------------------------------------------------------
==============================================================
Net income (loss) $ 1,799 $ 965 $ (175) $ 4,440 $ (343) $ 6,686
==============================================================
Total assets as of September 30, $ 3,356 $ 5,565 $ 1,410 $ 464 $ 3,492 $ 14,287
1998
==============================================================
_____________________________________
<FN>
<F1> Includes interest income and costs not identifiable to a particular
segment, such as interest expense, certain operations support, and general
and administrative expenses.
</FN>
</TABLE>
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
9. NET INCOME PER WEIGHTED-AVERAGE PARTNERSHIP UNIT
Net income per weighted-average Partnership unit was computed by dividing
net income attributable to limited partners by the weighted-average number
of Partnership units deemed outstanding during the period. The
weighted-average number of Partnership units deemed outstanding during the
three and nine months ended September 30, 1999 and 1998 was 7,381,805.
10. CONTINGENCIES
The Partnership, together with affiliates, has initiated litigation in
various official forums in India against a defaulting Indian airline lessee
to repossess Partnership property and to recover damages for failure to pay
rent and failure to maintain such property in accordance with relevant
lease contracts. The Partnership has repossessed all of its property
previously leased to such airline, and the airline has ceased operations.
In response to the Partnership's collection efforts, the airline filed
counter-claims against the Partnership in excess of the Partnership's
claims against the airline. The General Partner believes that the airline's
counterclaims are completely without merit, and the General Partner will
vigorously defend against such counterclaims. The General Partner believes
an unfavorable outcome from the counterclaims is remote.
(This space intentionally left blank.)
TEM 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, 1999 AND 1998
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance and
asset-specific insurance expenses) on owned equipment decreased during the third
quarter of 1999 when compared to the same quarter of 1998. Gains or losses from
the sale of equipment, interest and other income and certain expenses such as
depreciation and general and administrative expenses relating to the operating
segments (see Note 8 to the financial statements), are not included in the owned
equipment operation discussion because they are indirect in nature and not a
result of operations but the result of owning a portfolio of equipment. The
following table presents lease revenues less direct expenses by segment (in
thousands of dollars):
For the Three Months
Ended September 30,
1999 1998
----------------------------
Railcars $ 693 856
Trailers 365 547
Marine containers 38 42
Aircraft -- (2)
Railcars: Railcar lease revenues and direct expenses were $0.9 million and $0.2
million, respectively, for the third quarter of 1999, compared to $1.1 million
and $0.3 million, respectively, during the same quarter of 1998. Railcar
contribution decreased in the third quarter of 1999, compared to the same
quarter of 1998, due primarily to a group of railcars being off lease in 1999.
Trailers: Trailer lease revenues and direct expenses were $0.6 million and $0.2
million, respectively, for the third quarter of 1999, compared to $0.7 million
and $0.2 million, respectively, during the same quarter of 1998. The decrease in
trailer contribution was due to the sale of trailers in 1999 and 1998.
Marine containers: Marine container lease revenues and direct expenses were
$39,000 and $1,000, respectively during the third quarter of 1999 compared to
$43,000 and $1,000, respectively, during the same quarter in 1998. The decrease
in lease revenue was due to the reduction in the marine container fleet
resulting from the dispositions of marine containers over the past twelve
months.
Aircraft: Aircraft lease revenues and direct expenses were $0 and $2,000,
respectively, for the third quarter of 1998. The Partnership's remaining
wholly-owned aircraft was sold in 1998.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $0.8 million for the third quarter of 1999 decreased
from $0.9 million for the same quarter in 1998. The primary reason for the
decrease was a $0.1 million decrease in depreciation expense from 1998 levels
that reflects the effect of asset sales in 1999 and 1998.
(C) Net Gain on Disposition of Owned Equipment
Net gain on disposition of equipment for the third quarter of 1999 totaled
$27,000, and resulted from the disposal or sale of trailers and marine
containers, with an aggregate net book value of $21,000, for aggregate proceeds
of $48,000. For the same quarter in 1998, net gain on disposition of equipment
totaled $0.3 million, and resulted from the disposal or sale of a trailers, and
marine containers, with an aggregate net book value of $0.1 million, for
aggregate proceeds of $0.4 million.
D) Equity in Net Loss of Unconsolidated Special-Purpose Entities (USPEs)
Equity in net loss of unconsolidated special-purpose entities represents the
Partnership's share of the net loss generated from the operation of
jointly-owned assets accounted for under the equity method (see Note 7 to the
financial statements).
As of September 30, 1999 and 1998, the Partnership owned a 50% interest in an
entity which owns a commercial aircraft that was off lease during the third
quarter of 1999 and 1998. The Partnership's share of expenses for this entity
was $0.1 million for the third quarter of 1999 and 1998.
(E) Net Income
As a result of the foregoing, the Partnership's net income was $0.2 million for
the third quarter of 1999, compared to net income of $0.8 million during the
third quarter of 1998. 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 third quarter of 1999
is not necessarily indicative of future periods. In the third quarter of 1999,
the Partnership distributed $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, 1999 and 1998
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance and
asset-specific insurance expenses) on owned equipment decreased during the nine
months ended September 30, 1999 when compared to the same period of 1998. Gains
or losses from the sale of equipment, interest and other income and certain
expenses such as depreciation and general and administrative expenses relating
to the operating segments (see Note 8 to the financial statements), are not
included in the owned equipment operation discussion because they are indirect
in nature and not a result of operations but the result of owning a portfolio of
equipment. The following table presents lease revenues less direct expenses by
segment (in thousands of dollars):
For the Nine Months
Ended September 30,
1999 1998
----------------------------
Railcars $ 1,919 2,317
Trailers 1,075 1,581
Marine containers 114 172
Aircraft -- 47
Railcars: Railcar lease revenues and direct expenses were $2.7 million and $0.8
million, respectively, for the nine months ended September 30, 1999, compared to
$3.2 million and $0.9 million, respectively, during the same period of 1998.
Railcar contribution decreased $0.3 million in the nine months ended September
30, 1999, compared to the same period of 1998, due to a group of railcars being
off lease in 1999. In addition, railcar contribution decreased $0.1 million due
to the sale of railcars in 1999 and 1998.
Trailers: Trailer lease revenues and direct expenses were $1.6 million and $0.5
million, respectively, for the nine months ended September 30, 1999, compared to
$2.1 million and $0.5 million, respectively, during the same period of 1998. The
decrease in trailer contribution was due to the sale of trailers in 1999 and
1998.
Marine containers: Marine container lease revenues were $0.1 million during the
nine months ended September 30, 1999 compared to $0.2 million for the same
period in 1998. The decrease in lease revenue was due to the reduction in the
marine container fleet resulting from the dispositions of marine containers over
the past twelve months.
Aircraft: Aircraft lease revenues and direct expenses were $0.1 million and
$36,000, respectively, for the nine months ended September 30, 1998. The
Partnership's remaining wholly-owned aircraft was sold in 1998.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $2.4 million for the nine months ended September 30,
1999 decreased from $3.1 million for the same period in 1998. Significant
variances are explained as follows:
(i) A $0.4 million decrease in depreciation expense from 1998 levels
reflects the effect of asset sales in 1999 and 1998.
(ii) A $0.3 million decrease in general and administrative expenses from
1998 levels due to reduced office expenses and professional services required by
the Partnership, resulting from the reduced equipment portfolio.
(iii) A $47,000 decrease in interest expense due to the repayment of the
Partnership's outstanding debt in 1998.
(iv)The $0.1 million increase in bad debt expense was due to the recovery
of an outstanding receivable that had previously been reserved for as a bad debt
in the nine months ended September 30, 1998. A similar recovery did not occur in
1999.
(C) Net Gain on Disposition of Owned Equipment
Net gain on disposition of equipment for the nine months ended September 30,
1999 totaled $0.3 million, and resulted from the disposal or sale of trailers,
marine containers, and railcars, with an aggregate net book value of $0.3
million, for aggregate proceeds of $0.6 million. For the same period in 1998,
net gain on disposition of equipment totaled $5.9 million, and resulted from the
sale or disposal of an aircraft, marine containers, trailers, and railcars, with
an aggregate net book value of $1.9 million, for aggregate proceeds of $7.8
million.
(D) Equity in Net Loss of Unconsolidated Special-Purpose Entities
Equity in net loss of unconsolidated special-purpose entities represents the
Partnership's share of the net loss generated from the operation of
jointly-owned assets accounted for under the equity method (see Note 6 to the
financial statements).
As of September 30, 1999 and 1998, 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, 1999 and 1998. The Partnership's share of expenses
for this entity was $0.4 million for the nine months ended September 30, 1999
and 1998. During the first nine months 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 $0.6 million for
the nine months ended September 30, 1999, compared to net income of $6.7 million
during the nine months ended September 30, 1998. 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 nine months ended September 30, 1999 is not necessarily indicative of future
periods. In the nine months ended September 30, 1999, the Partnership
distributed $3.2 million to the limited partners, or $0.44 per weighted-average
depositary unit.
II) FINANCIAL CONDITION -- CAPITAL RESOURCES AND LIQUIDITY
For the nine months ended September 30, 1999, the Partnership generated $1.9
million in operating cash (net cash provided by operating activities less
investment in the USPE to fund its operations) to meet its operating
obligations, but used undistributed available cash from prior periods and asset
sale proceeds of approximately $1.5 million to maintain the level of
distributions (total of $3.4 million in the nine months ended September 30,
1999) to the partners.
During the nine months ended September 30, 1999, the Partnership sold or
disposed of marine containers, trailers, and railcars, with
an aggregate net book value of $0.3 million, for proceeds of $0.6 million.
The General Partner has not planned any expenditures, nor is it aware of any
contingencies that would cause the Partnership to require any additional capital
to that mentioned above.
The Partnership is in its active liquidation phase. As a result, 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 special distributions to the partners.
The amounts reflected for assets and liabilities of the Partnership have not
been adjusted to reflect liquidation values. The equipment portfolio that is
actively being marketed for sale by the General Partner continues to be carried
at the lower of depreciated cost or fair value less cost of disposal. Although
the General Partner estimates that there will be distributions to the
Partnership after final disposal of assets and settlement of liabilities, the
amounts cannot be accurately determined prior to actual disposal of the
equipment.
(III) EFFECTS OF YEAR 2000
It is possible that the General Partner's currently installed computer systems,
software products, and other business systems, or those of 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 possibility commonly known as the "Year 2000" or "Y2K" 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 business systems in order to
determine whether such systems will retain functionality after December 31,
1999. As of September 30, 1999, the General Partner has completed inventory,
assessment, remediation and testing stages of its Year 2000 review of its core
business information systems. Specifically, the General Partner (a) has
integrated 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
been made Year 2000 compliant. In addition, numerous other software systems
provided by vendors and service providers have been replaced with systems
represented by the vendor or service provider to be Year 2000 functional. These
systems have been tested and appear to be to be compliant.
As of September 30, 1999, the costs incurred and allocated to the Fund to become
Year 2000 compliant have not been material and does not anticipate any
additional Year 2000-compliant expenditures.
Some risks associated with the Year 2000 problem are beyond the ability of the
Partnership or General Partner to control, including the extent to which third
parties can address the Year 2000 problem. The General Partner is communicating
with vendors, services providers, and customers in order to assess the Year 2000
readiness of such parties and the extent to which the Partnership is vulnerable
to any third-party Year 2000 issues. As part of this process, vendors and
service providers were ranked in terms of the relative importance of the service
or product provided. All service providers and vendors who were identified as
medium to high relative importance were surveyed to determine Year 2000 status.
The General Partner has received satisfactory responses to Year 2000 readiness
inquiries from surveyed service providers and vendors.
It is possible that certain of the Partnership's equipment lease portfolio may
not be Year 2000 compliant. The General Partner has contacted equipment
manufacturers of the portion of the Partnership's leased equipment portfolio
identified as date sensitive to assure Year 2000 compliance or to develop
remediation strategies. The Partnership does not expect that non-Year 2000
compliance of its leased equipment portfolio will have an adverse material
impact on its financial statements. The General Partner has surveyed the
majority of its lessees and the majority of those surveyed have responded
satisfactorily to Year 2000 readiness inquiries.
There can be no assurance that the software systems of such parties will be
converted or made Year 2000 compliant in a timely manner. 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 has
made and will continue an ongoing effort to recognize and evaluate potential
exposure relating to third party Year 2000 noncompliance. The General Partner
will implement a contingency plan if the General Partner determines that
third-party noncompliance would have a material adverse effect on the
Partnership's business, financial position, or results of operation.
The General Partner is currently developing a contingency plan to address the
possible failure of any systems or vendors or service providers due to Year 2000
problems. For the purpose of such contingency planning, a reasonably likely
worst case scenarios primarily anticipate a) an inability to access systems and
data on a temporary basis resulting in possible delay in reconciliation of funds
received or payment of monies owed, or b) an inability to continuously employ
equipment assets due to temporary Year 2000 related failure of external
infrastructure necessary to the ongoing operation of the equipment. The General
Partner is evaluating whether there are additional scenarios, which have not
been identified. Contingency planning will encompass strategies up to and
including manual processes. The General Partner anticipates that these plans
will be completed in the fourth quarter of 1999.
(IV) OUTLOOK FOR THE FUTURE
Since the Partnership is in its active 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. Throughout the remaining life of the
Partnership, the Partnership may periodically make special distributions to the
partners as asset sales are completed.
Several factors may affect the Partnership's operating performance in the
remainder of 1999 and beyond, including changes in the markets for the
Partnership's equipment and changes in the regulatory environment in which that
equipment operates.
Liquidation of the Partnership's equipment and investment in USPE represents a
reduction in the size of the equipment portfolio and may result in a reduction
of contribution to the Partnership. Other factors affecting the Partnership's
contribution in the remainder of 1999 and beyond includes:
1. The Partnership's remaining aircraft which, it jointly owns with an
affiliated Partnership, has been off-lease for over two years. This aircraft
required extensive repairs and maintenance and has had difficulty being
re-leased or sold. This aircraft will remain off-lease until it is sold.
2. Railcar loadings in North America have continued to be high, however a
softening in the market is expected in the remainder of 1999 and into 2000,
which may lead to lower utilization and lower contribution to the Partnership.
The market for mill gondalos railcars is soft and 75 of the Partnership's
railcars are presently off lease.
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 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 partners.
(V) 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposure is that of currency devaluation
risk. During the nine months ended September 30, 1999, 27% of the Partnership's
total lease revenues from wholly- and partially-owned equipment came from
non-United States domiciled lessees. Most of the leases require payment in
United States (U.S.) currency. If these lessee's currency devalues against the
U.S. dollar, the lessees could encounter difficulty in making the U.S. dollar
denominated lease payments.
(This space intentionally left blank.)
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None.
(b) REPORTS ON FORM 8-K
None.
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: October 27, 1999 By: /s/ Richard K Brock
Richard K Brock
Vice President and
Corporate Controller
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