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, 2000
[ ] 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,
2000 1999
------------------------------------
<S> <C> <C>
ASSETS
Equipment held for operating lease, at cost $ 28,114 $ 32,487
Less accumulated depreciation (23,298) (25,815)
------------------------------------
Net equipment 4,816 6,672
Cash and cash equivalents 1,685 894
Accounts receivable, less allowance for doubtful
accounts of $104 in 2000 and $107 in 1999 647 877
Investment in unconsolidated special-purpose entity -- 368
Prepaid expenses and other assets 1 47
------------------------------------
Total assets $ 7,149 $ 8,858
====================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 195 $ 352
Due to affiliates 56 67
Lessee deposits and reserve for repairs 698 783
------------------------------------
Total liabilities 949 1,202
------------------------------------
Partners' capital:
Limited partners (7,381,805 depositary units as of September 30,
2000 and December 31, 1999, respectively) 6,200 7,656
General Partner -- --
------------------------------------
Total partners' capital 6,200 7,656
------------------------------------
Total liabilities and partners' capital $ 7,149 $ 8,858
====================================
</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,
2000 1999 2000 1999
--------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Lease revenue $ 1,290 $ 1,477 $ 4,156 $ 4,354
Interest and other income 24 18 60 61
Net gain on disposition of equipment 276 27 778 260
--------------------------------------------------------------
Total revenues 1,590 1,522 4,994 4,675
--------------------------------------------------------------
EXPENSES
Depreciation 391 486 1,236 1,488
Repairs and maintenance 359 346 1,217 1,151
Equipment operating expenses 45 39 135 107
Management fees to affiliate 65 75 208 218
General and administrative expenses
to affiliates 59 59 178 199
Other general and administrative expenses 182 173 609 490
(Recovery of) provision for bad debts (19) 3 (9) 13
--------------------------------------------------------------
Total expenses 1,082 1,181 3,574 3,666
--------------------------------------------------------------
Equity in net income (loss) of an
unconsolidated special-purpose entity -- (97) 1,304 (409)
--------------------------------------------------------------
Net income $ 508 $ 244 $ 2,724 $ 600
==============================================================
PARTNERS' SHARE OF NET INCOME:
Limited partners $ 452 $ 187 $ 2,515 $ 430
General Partner 56 57 209 170
--------------------------------------------------------------
Total $ 508 $ 244 $ 2,724 $ 600
==============================================================
Limited partners' net income per weighted-
average depositary unit $ 0.06 $ 0.03 $ 0.34 $ 0.06
==============================================================
Cash distributions $ 1,130 $ 1,136 $ 3,403 $ 3,409
Special cash distributions -- -- 777 --
--------------------------------------------------------------
Total cash distributions $ 1,130 $ 1,136 $ 4,180 $ 3,409
==============================================================
Per weighted-average depositary unit:
Cash distributions $ 0.15 $ 0.15 $ 0.44 $ 0.44
Special cash distributions -- -- 0.10 --
--------------------------------------------------------------
Total cash distributions $ 0.15 $ 0.15 $ 0.54 $ 0.44
==============================================================
</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, 1998 to September 30, 2000
(in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
---------------------------------------------------
<S> <C> <C> <C>
Partners' capital as of December 31, 1998 $ 11,267 $ -- $ 11,267
Net income 707 227 934
Cash distribution (4,318) (227) (4,545)
---------------------------------------------------
Partners' capital as of December 31, 1999 7,656 -- 7,656
Net income 2,515 209 2,724
Cash distribution (3,233) (170) (3,403)
Special cash distribution (738) (39) (777)
---------------------------------------------------
Partners' capital as of September 30, 2000 $ 6,200 $ -- $ 6,200
===================================================
</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,
2000 1999
-----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,724 $ 600
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 1,236 1,488
Net gain on disposition of equipment (778) (260)
Equity in net (income) loss from an unconsolidated special-purpose
Entity (1,304) 409
Changes in operating assets and liabilities:
Accounts receivable, net 230 237
Prepaid expenses and other assets 46 28
Accounts payable and accrued expenses (157) (152)
Due to affiliates (11) (23)
Lessee deposits and reserve for repairs (85) (3)
-----------------------------------
Net cash provided by operating activities 1,901 2,324
-----------------------------------
INVESTING ACTIVITIES
Payments for capitalized improvements -- (4)
Proceeds from disposition of equipment 1,398 578
Liquidation distributions from an unconsolidated special-purpose entity 1,824 --
Additional investments in an unconsolidated special-purpose entity (152) (442)
-----------------------------------
Net cash provided by investing activities 3,070 132
-----------------------------------
FINANCING ACTIVITIES
Cash distribution paid to limited partners (3,233) (3,239)
Cash distribution paid to General Partner (170) (170)
Special cash distribution paid to limited partners (738) --
Special cash distribution paid to General Partner (39) --
-----------------------------------
Net cash used in financing activities (4,180) (3,409)
-----------------------------------
Net increase (decrease) in cash and cash equivalents 791 (953)
Cash and cash equivalents at beginning of period 894 1,986
-----------------------------------
Cash and cash equivalents at end of period $ 1,685 $ 1,033
===================================
</TABLE>
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
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, 2000 and December 31, 1999,
the statements of income for the three and nine months ended September 30,
2000 and 1999, the statements of changes in partners' capital for the
period from December 31, 1998 to September 30, 2000, and the statements of
cash flows for the nine months ended September 30, 2000 and 1999. 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, 1999, 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's assets. The Partnership will
terminate on December 31, 2006, unless terminated earlier upon the sale of
all equipment 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 1999 financial statements have been reclassified to
conform to the 2000 presentation.
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, 2000 and 1999, cash distributions totaled
$3.4 million. For the three months ended September 30, 2000 and 1999, cash
distributions totaled $1.1 million. In addition, a $0.8 million special
distribution was paid to the partners during the nine months ended
September 30, 2000, from the proceeds realized on the sale of equipment in
2000 and 1999. No special distributions were paid in the nine months ended
September 30, 1999. Cash distributions to the limited partners of $1.5
million and $2.8 million for the nine months ended September 30, 2000 and
1999, respectively, were deemed to be a return of capital.
Cash distributions related to the results from the third quarter of 2000 of
$1.1 million, will be paid during November 2000.
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
5. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES
Partnership management fees and data processing services of $0.1 million
were payable as of September 30, 2000 and December 31, 1999.
The Partnership's proportional share of the data processing and
administrative expenses incurred by the unconsolidated special-purpose
entity (USPE) was $2,000 and $5,000 for the nine months ended September 30,
2000 and 1999, respectively and $0 and $2,000 for the three months ended
September 30, 2000 and 1999, respectively.
6. EQUIPMENT
The components of owned equipment were as follows (in thousands of
dollars):
September 30, December 31,
2000 1999
--------------------------------------
Railcars $ 14,961 $ 16,249
Trailers 9,525 10,606
Marine containers 3,628 5,632
--------------------------------------
28,114 32,487
Less accumulated depreciation (23,298) (25,815)
--------------------------------------
Net equipment $ 4,816 $ 6,672
======================================
As of September 30, 2000, all equipment was on lease, except for 135 marine
containers and 107 railcars with an aggregate net book value of $0.3
million. As of December 31, 1999, all equipment was either on lease or
operating in PLM-affiliated short-term trailer rental facilities, except
for 84 railcars and 134 marine containers with an aggregate net book value
of $0.4 million.
During the nine months ended September 30, 2000, the Partnership disposed
of marine containers, trailers, and railcars, with an aggregate net book
value of $0.6 million, for proceeds of $1.4 million.
For the nine months ended September 30, 1999, the Partnership disposed of
marine containers, trailers, and railcars, with an aggregate net book value
of $0.3 million, for proceeds of $0.6 million.
7. INVESTMENT IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITY
The net investment in a USPE consisted of a 50% interest in a trust that
owned a Boeing 737-200A aircraft (and related assets and liabilities)
totaling $0.4 million as of December 31, 1999.
During the nine months ended September 30, 2000, the General Partner sold
the Partnership's investment in this USPE for proceeds of $1.8 million that
resulted in a gain on disposition of $1.4 million.
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
8. OPERATING SEGMENTS
The Partnership operates or operated 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
Railcar Trailer Container All
For the quarter ended September 30, Leasing Leasing Leasing Other(1) Total
2000
<S> <C> <C> <C> <C> <C>
REVENUES
Lease revenue $ 799 $ 502 $ (11) $ -- $ 1,290
Interest income and other -- -- -- 24 24
Gain (loss) on disposition of 40 278 (42) -- 276
equipment
----------------------------------------------------
Total revenues 839 780 (53) 24 1,590
COSTS AND EXPENSES
Operations support 183 210 1 10 404
Depreciation 178 165 48 -- 391
Management fees 42 24 (1) -- 65
General and administrative 33 99 1 108 241
expenses
(Recovery of) provision for bad (21) 2 -- -- (19)
debts
----------------------------------------------------
Total costs and expenses 415 500 49 118 1,082
----------------------------------------------------
Net income (loss) $ 424 $ 280 $ (102 )$ (94 ) $ 508
====================================================
Total assets as of September 30, $ 1,500 $ 3,756 $ 207 $ 1,686 $ 7,149
2000
====================================================
</TABLE>
<TABLE>
<CAPTION>
Marine
Railcar Trailer Container Aircraft All
For the quarter ended September 30, Leasing Leasing Leasing Leasing Other(1) Total
1999
<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
==============================================================
(1) Includes interest income and costs not identifiable to a particular
segment, such as certain operations support and general and administrative
expenses.
</TABLE>
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
8. OPERATING SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
Marine
Railcar Trailer Container Aircraft All
For the nine months ended September Leasing Leasing Leasing Leasing Other(1) Total
30, 2000
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Lease revenue $ 2,593 $ 1,486 $ 77 $ -- $ -- $ 4,156
Interest income and other -- -- -- -- 60 60
Gain (loss) on disposition of 615 300 (137) -- -- 778
equipment
--------------------------------------------------------------
Total revenues 3,208 1,786 (60) -- 60 4,994
COSTS AND EXPENSES
Operations support 781 540 3 -- 28 1,352
Depreciation 557 508 171 -- -- 1,236
Management fees 130 74 4 -- -- 208
General and administrative 159 240 4 2 382 787
expenses
Provision for (recovery of) bad 8 (17) -- -- -- (9)
debts
--------------------------------------------------------------
Total costs and expenses 1,635 1,345 182 2 410 3,574
--------------------------------------------------------------
Equity in net income of USPE -- -- -- 1,304 -- 1,304
--------------------------------------------------------------
--------------------------------------------------------------
Net income (loss) $ 1,573 $ 441 $ (242) $ 1,302 $ (350) $ 2,724
==============================================================
Total assets as of September 30, $ 1,500 $ 3,756 $ 207 $ -- $ 1,686 $ 7,149
2000
==============================================================
Marine
Railcar Trailer Container Aircraft All
For the nine months ended September Leasing Leasing Leasing Leasing Other(1) Total
30, 1999
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
Provision for (recovery of) 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
==============================================================
(1) Includes interest income and costs not identifiable to a particular
segment, such as certain operations support and general and administrative
expenses.
</TABLE>
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
9. 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, 2000 and 1999 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.
11. Liquidation and Special Distributions
On January 1, 1999, the General Partner began the liquidation phase of the
Partnership with the intent to commence an orderly liquidation of the
Partnership assets. The General Partner is actively marketing the remaining
equipment portfolio with the intent of maximizing sale proceeds. As sale
proceeds are received the General Partner intends to periodically declare
special distributions to distribute the sale proceeds to the partners.
During the liquidation phase of the Partnership the equipment will continue
to be leased under operating leases until sold. Operating cash flows, to
the extent they exceed Partnership expenses, will continue to be
distributed on a quarterly basis to partners. The amounts reflected for
assets and liabilities of the Partnership have not been adjusted to reflect
liquidation values. The equipment portfolio continues to be carried at the
lower of depreciated cost or fair value less cost to dispose. Although the
General Partner estimates that there will be distributions after
liquidation of assets and liabilities, the amounts cannot be accurately
determined prior to actual liquidation of the equipment. Any excess
proceeds over expected Partnership obligations will be distributed to the
Partners throughout the liquidation period. Upon final liquidation, the
Partnership will be dissolved.
The Partnership is not permitted to reinvest proceeds from sales or
liquidations of equipment. These proceeds, in excess of operational cash
requirements, are periodically paid out to partners in the form of special
distributions. The sales and liquidations occur due to the determination by
the General Partner that it is the appropriate time to maximize the return
on an asset through sale of that asset, and, in some cases, the ability of
the lessee to exercise purchase options. In the nine months ended September
30, 2000, the General Partner paid special distributions of $0.10 per
weighted-average depositary unit. No special distributions were paid in the
nine months ended September 30, 1999.
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, 2000 AND 1999
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance and
equipment operating expenses) on owned equipment decreased during the third
quarter of 2000 when compared to the same quarter of 1999. 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 equipment type
(in thousands of dollars):
For the Three Months
Ended September 30,
2000 1999
---------------------------
Railcars $ 616 $ 693
Trailers 292 365
Marine containers (12) 38
Railcars: Railcar lease revenues and direct expenses were $0.8 million and $0.2
million, respectively, for the third quarter of 2000, compared to $0.9 million
and $0.2 million, respectively, during the same quarter of 1999. The decrease in
railcar contribution in the third quarter of 2000 compared to the same quarter
of 1999 was due to the disposition of railcars in 1999 and 2000.
Trailers: Trailer lease revenues and direct expenses were $0.5 million and $0.2
million, respectively, for the third quarter of 2000, compared to $0.6 million
and $0.2 million, respectively, during the same quarter of 1999. The decrease in
trailer contribution in the third quarter of 2000 compared to the same quarter
of 1999 was due to the disposition of trailers in 1999 and 2000.
Marine containers: Marine container lease revenues and direct expenses were
$(11,000) and $1,000, respectively, during the third quarter of 2000, compared
to $39,000 and $1,000, respectively, during the same quarter of 1999. The
decrease in marine container contribution in the third quarter of 2000 compared
to the same quarter of 1999 was due to the disposition of marine containers in
1999 and 2000.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $0.7 million for the third quarter of 2000 decreased
from $0.8 million for the same quarter in 1999. The primary reason for the
decrease was a $0.1 million decrease in depreciation expense from 1999 levels
due to asset dispositions in 2000 and 1999.
(C) Net Gain on Disposition of Owned Equipment
Net gain on disposition of equipment for the third quarter of 2000 totaled $0.3
million, and resulted from the disposal or sale of marine containers, trailers,
and railcars, with an aggregate net book value of $0.1 million, for aggregate
proceeds of $0.4 million. For the same quarter in 1999, net gain on disposition
of equipment 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.
(D) Equity in Net Income (Loss) of an Unconsolidated Special-Purpose Entity
(USPE)
Equity in the net income (loss) of an unconsolidated special-purpose entity
represents the Partnership's share of the net loss generated from the operation
of a jointly-owned asset accounted for under the equity method (see Note 7 to
the financial statements).
As of September 30, 2000, the Partnership had no remaining interests in entities
which owned equipment. The Partnership's remaining partially-owned aircraft was
sold in the first quarter of 2000. Expenses were $0.1 million for the third
quarter of 1999.
(E) Net Income
As a result of the foregoing, the Partnership's net income was $0.5 million for
the third quarter of 2000, compared to net income of $0.2 million during the
third quarter of 1999. 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 2000
is not necessarily indicative of future periods. In the third quarter of 2000,
the Partnership distributed $1.1 million to the limited partners, or $0.15 per
weighted-average limited partnership unit.
Comparison of the Partnership's Operating Results for the Nine Months Ended
September 30, 2000 and 1999
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance and
equipment operating expenses) on owned equipment decreased during the nine
months ended September 30, 2000 when compared to the same period of 1999. The
following table presents lease revenues less direct expenses by equipment type
(in thousands of dollars):
For the Nine Months
Ended September 30,
2000 1999
----------------------------
Railcars $ 1,812 $ 1,919
Trailers 946 1,075
Marine containers 74 114
Railcars: Railcar lease revenues and direct expenses were $2.6 million and $0.8
million, respectively, for the nine months ended September 30, 2000, compared to
$2.7 million and $0.8 million, respectively, during the same period of 1999. The
decrease in railcar contribution in the nine months ended September 30, 2000
compared to the same period of 1999 was due to the disposition of railcars in
1999 and 2000.
Trailers: Trailer lease revenues and direct expenses were $1.5 million and $0.5
million, respectively, for the nine months ended September 30, 2000, compared to
$1.6 million and $0.5 million, respectively, during the same period of 1999. The
decrease in trailer contribution in the nine months ended September 30, 2000
compared to the same period of 1999 was due to the disposition of trailers in
1999 and 2000.
Marine containers: Marine container lease revenues were $0.1 million during the
nine months ended September 30, 2000 and 1999. The decrease in marine container
contribution in the nine months ended September 30, 2000 compared to the same
period of 1999 was due to the disposition of marine containers in 1999 and 2000.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $2.2 million for the nine months ended September 30,
2000 decreased from $2.4 million for the same period in 1999. Significant
variances are explained as follows:
(i) A $0.3 million decrease in depreciation expense from 1999 levels
reflects the effect of asset dispositions in 2000 and 1999.
(ii) A $0.1 million increase in general and administrative expenses from
1999 levels due to the increased costs associated with professional services
required by the Partnership.
(C) Net Gain on Disposition of Owned Equipment
Net gain on disposition of equipment for the nine months ended September 30,
2000 totaled $0.8 million, and resulted from the disposal of marine containers,
trailers, and railcars, with an aggregate net book value of $0.6 million, for
aggregate proceeds of $1.4 million. For the same period in 1999, net gain on
disposition of equipment totaled $0.3 million, and resulted from the disposal of
marine containers, trailers, and railcars, with an aggregate net book value of
$0.3 million, for aggregate proceeds of $0.6 million.
(D) Equity in Net Income (Loss) of an Unconsolidated Special-Purpose Entity
Equity in the net income (loss) of an unconsolidated special-purpose entity
represents the Partnership's share of the net income (loss) generated from the
operation of a jointly-owned asset accounted for under the equity method (see
Note 7 to the financial statements).
As of September 30, 2000, the Partnership had no remaining interests in entities
which owned equipment. During the nine months ended September 30, 2000, the gain
from the sale of the Partnership's interest in the USPE of $1.4 million, which
was sold in the first quarter of 2000, was offset by depreciation expense,
direct expenses, and administrative expenses of $0.1 million. During the same
period of 1999, depreciation expense, direct expenses, and administrative
expenses were $0.4 million.
(E) Net Income
As a result of the foregoing, the Partnership's net income was $2.7 million for
the nine months ended September 30, 2000, compared to net income of $0.6 million
during the nine months ended September 30, 1999. 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, 2000 is not necessarily indicative of future
periods. In the nine months ended September 30, 2000, the Partnership
distributed $3.2 million to the limited partners, or $0.44 per weighted-average
limited partnership unit. In addition, a special distribution of $0.7 million or
$0.10 per weighted-average limited partnership unit was made in the nine months
of 2000.
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES AND LIQUIDITY
For the nine months ended September 30, 2000, the Partnership generated $1.7
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
proceeds from equipment sales and liquidating distributions from USPEs of
approximately $2.5 million to make the distributions (total of $4.2 million in
the nine months ended September 30, 2000, which includes a special distribution
of $0.8 million) to the partners.
During the nine months ended September 30, 2000, the Partnership disposed of
marine containers, trailers, and railcars, with an aggregate net book value of
$0.6 million, for proceeds of $1.4 million. The Partnership also received
liquidating proceeds of $1.8 million from the sale of its interest in an entity
owning an aircraft.
Accounts receivable decreased $0.2 million during the nine months ended
September 30, 2000 due to the timing of receipt of payments from lessees and the
reduction in lease revenues.
Accounts payable and accrued expenses decreased $0.2 million during the nine
months ended September 30, 2000 due to a decrease in trade accounts payable
resulting from the reduction of the size of the Partnership's equipment
portfolio.
Lessee deposits and reserve for repairs decreased $0.1 million during the nine
months ended September 30, 2000 due to the decrease in reserves resulting from
the sale of marine containers in 2000.
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) 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.
Several factors may affect the Partnership's operating performance in the
remainder of 2000 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 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 year
2000 include:
1. The cost of new marine containers which has been at historic lows for the
past several years which has caused downward pressure on per diem lease rates.
Recently, the cost of marine containers have started to increase which, if this
trend continues, should translate into higher per diem lease rates. Demand,
however, for some of the Partnership's refrigerated marine containers has been
weak, as they are older containers. These marine containers are currently off
lease and the General Partner plans to dispose of these containers.
2. Railcar loadings in North America have continued to be high, however a
softening in the market is expected and will lead to lower utilization and lower
contribution to the Partnership as existing leases expire and renewal leases are
negotiated.
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 and proceeds from
disposition of equipment to satisfy its operating requirements, maintain working
capital reserves, and pay cash distributions to the investors.
(IV) 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, 2000, 27% of the Partnership's
total lease revenues 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.
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
(This space intentionally left blank.)
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.
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 6, 2000 By: /s/ Richard K Brock
Richard K Brock
Chief Financial Officer
