-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A8arcmetR4d6ejrZwK7ycuCFpJkFYPjF2xHm2G2ig5SZQDYmEetiH/oiyL8wgtWP yfY/BVes9JQllI79swGKjg== 0000812072-98-000005.txt : 19981109 0000812072-98-000005.hdr.sgml : 19981109 ACCESSION NUMBER: 0000812072-98-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLM EQUIPMENT GROWTH FUND II CENTRAL INDEX KEY: 0000812072 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 943041013 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10553 FILM NUMBER: 98739384 BUSINESS ADDRESS: STREET 1: STEUART ST TOWER STE 900 STREET 2: C/O ONE MARKET PLAZA CITY: SAN FRANCISCO STATE: CA ZIP: 94105 BUSINESS PHONE: 4159741399 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------- FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal quarter ended September 30, 1998 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number 1-10553 ----------------------- PLM EQUIPMENT GROWTH FUND II (Exact name of registrant as specified in its charter) California 94-3041013 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Market, Steuart Street Tower Suite 800, San Francisco, CA 94105-1301 (Address of principal (Zip code) executive offices) Registrant's telephone number, including area code (415) 974-1399 ----------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ______ PLM EQUIPMENT GROWTH FUND II A Limited Partnership BALANCE SHEETS (in thousands of dollars, except per unit amounts)
September 30, December 31, 1998 1997 --------------------------------------- Assets Equipment held for operating lease, at cost $ 36,705 $ 50,707 Less accumulated depreciation (27,134) (38,170 ) --------------------------------------- 9,571 12,537 Equipment held for sale -- 788 Net equipment 9,571 13,325 Cash and cash equivalents 3,235 556 Restricted cash -- 395 Accounts receivable, less allowance for doubtful accounts of $85 in 1998 and $1,146 in 1997 1,014 1,626 Investments in unconsolidated special-purpose entities 464 2,680 Prepaid expenses and other assets 3 49 Total assets $ 14,287 $ 18,631 ======================================= Liabilities and partners' capital Liabilities: Accounts payable and accrued expenses $ 372 $ 365 Due to affiliates 75 195 Lessee deposits and reserve for repairs 782 1,846 Notes payable -- 2,500 --------------------------------------- Total liabilities 1,229 4,906 --------------------------------------- Partners' capital: Limited partners (7,381,805 depositary units as of September 30, 1998 and December 31, 1997, respectively) 13,058 13,725 General Partner -- -- --------------------------------------- Total partners' capital 13,058 13,725 --------------------------------------- Total liabilities and partners' capital $ 14,287 $ 18,631 =======================================
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)
For the Three Months For the Nine Months Ended September 30, Ended September 30, 1998 1997 1998 1997 ------------------------------------------------------------------- Revenues Lease revenue $ 1,872 $ 2,606 $ 5,569 $ 8,112 Interest and other income 49 51 175 195 Net gain on disposition of equipment 313 336 5,921 1,363 ------------------------------------------------------------------- Total revenues 2,234 2,993 11,665 9,670 ------------------------------------------------------------------- Expenses Depreciation and amortization 573 1,014 1,899 3,387 Repairs and maintenance 420 483 1,416 1,288 Interest expense -- 140 47 566 Insurance expense to affiliate -- -- 24 -- Other insurance expense 16 25 56 98 Management fees to affiliate 103 119 291 375 General and administrative expenses to affiliates 92 157 336 529 Other general and administrative expenses 152 248 607 740 Provision for (recovery of) bad debt 5 310 (68) 538 ------------------------------------------------------------------- Total expenses 1,361 2,496 4,608 7,521 ------------------------------------------------------------------- Equity in net income (loss) of unconsolidated special-purpose entities (119) 12 (371) (1,029) ------------------------------------------------------------------- Net income $ 754 $ 509 $ 6,686 $ 1,120 =================================================================== Partners' share of net income Limited partners $ 697 $ 388 $ 6,318 $ 722 General Partner 57 121 368 398 ------------------------------------------------------------------- Total $ 754 $ 509 $ 6,686 $ 1,120 =================================================================== Net income per weighted-average depositary unit $ 0.09 $ 0.05 $ 0.86 $ 0.10 =================================================================== Cash distributions $ 1,137 $ 1,166 $ 3,468 $ 5,051 =================================================================== Cash distributions per weighted-average depositary unit $ 0.15 $ 0.15 $ 0.45 $ 0.65 =================================================================== Special cash distributions $ -- $ -- $ 3,885 $ -- =================================================================== Special cash distributions per weighted- average depositary unit $ -- $ -- $ 0.50 $ -- =================================================================== Total cash distributions per weighted- average depositary unit $ 0.15 $ 0.15 $ 0.95 $ 0.65 ===================================================================
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, 1996 to September 30, 1998 (in thousands of dollars)
Limited General Partners Partner Total ------------------------------------------------------- Partners' capital (deficit) as of December 31, 1996 $ 17,434 $ (188 ) $ 17,246 Net income 2,196 499 2,695 Cash distributions (5,905 ) (311 ) (6,216) Partners' capital as of December 31, 1997 13,725 -- 13,725 Net income 6,318 368 6,686 Cash distributions (3,294 ) (174 ) (3,468) Special cash distributions (3,691 ) (194 ) (3,885) Partners' capital as of September 30, 1998 $ 13,058 $ -- $ 13,058 ========================================================
See accompanying notes to financial statements. PLM EQUIPMENT GROWTH FUND II A Limited Partnership STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, (in thousands of dollars)
1998 1997 --------------------------------------- Operating activities Net income $ 6,686 $ 1,120 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Net gain on disposition of equipment (5,921 ) (1,363 ) Depreciation and amortization 1,899 3,387 Equity in net loss from unconsolidated special-purpose entities 371 1,029 Changes in operating assets and liabilities: Restricted cash 395 -- Accounts receivable, net 629 (856 ) Prepaid expenses and other assets 46 1,003 Accounts payable and accrued expenses 7 84 Due to affiliates (120 ) 66 Lessee deposits and reserve for repairs (1,064 ) (1,070 ) --------------------------------------- Net cash provided by operating activities 2,928 3,400 --------------------------------------- Investing activities Proceeds from disposition of equipment 7,759 4,185 Liquidation distributions from unconsolidated special-purpose entities 1,425 -- Reimbursements of capital improvements -- (23 ) Distributions from (additional investments in) unconsolidated special-purpose entities 420 16 --------------------------------------- Net cash provided by investing activities 9,604 4,178 --------------------------------------- Financing activities Principal payments on notes payable (2,500 ) (7,217 ) Cash distributions paid to limited partners (6,985 ) (4,798 ) Cash distributions paid to General Partner (368 ) (253 ) --------------------------------------- Net cash used in financing activities (9,853 ) (12,268 ) --------------------------------------- Net increase (decrease) in cash and cash equivalents 2,679 (4,690 ) Cash and cash equivalents at beginning of period 556 7,962 --------------------------------------- Cash and cash equivalents at end of period $ 3,235 $ 3,272 ======================================= Supplemental information Interest paid $ 47 $ 508 ======================================= Sale proceeds included in accounts receivable $ 17 $ 55 =======================================
See accompanying notes to financial statements. PLM EQUIPMENT GROWTH FUND II A Limited Partnership NOTES TO FINANCIAL STATEMENTS September 30, 1998 1. Opinion of Management In the opinion of the management of PLM Financial Services, Inc. (the General Partner), the accompanying unaudited financial statements contain all adjustments necessary, consisting primarily of normal recurring accruals, to present fairly the financial position of PLM Equipment Growth Fund II (the Partnership) as of September 30, 1998 and December 31, 1997, the statements of income for the three and nine months ended September 30, 1998 and 1997, the statements of changes in partners' capital for the period from December 31, 1996 to September 30, 1998, and the statements of cash flows for the nine months ended September 30, 1998 and 1997. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from the accompanying financial statements. For further information, reference should be made to the financial statements and notes thereto included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1997, on file at the Securities and Exchange Commission. 2. Cash Distributions Cash distributions are recorded when paid and totaled $3.5 million and $5.1 million for the nine months ended September 30, 1998 and 1997, respectively, and $1.1 million and $1.2 million for the three months ended September 30, 1998 and 1997, respectively. In addition, a $3.9 million special distribution was paid to the partners during the nine months ended September 30, 1998 from the proceeds realized on the sale of equipment in 1998 and 1997. Cash distributions to limited partners in excess of net income are considered to represent a return of capital. Cash distributions to limited partners of $0.7 million and $4.1 million for the nine months ended September 30, 1998 and 1997, respectively, were deemed to be a return of capital. Cash distributions related to the results from the third quarter of 1998, of $1.1 million, are payable during November 1998. 3. Transactions with General Partner and Affiliates Partnership management fees of $0.1 million and $0.2 million were payable as of September 30, 1998 and December 31, 1997, respectively. The Partnership's proportional share of the data processing and administrative expenses incurred by the unconsolidated special-purpose entities (USPEs) was $10,000 and $5,000 for the nine months ended September 30, 1998 and 1997, respectively, and $0 and $1,000 for the three months ended September 30, 1998 and 1997, respectively. 4. Equipment Owned equipment held for operating lease is stated at cost. The components of owned equipment held for operating lease are as follows (in thousands of dollars):
September 30, December 31, 1998 1997 ------------------------------------- Rail equipment $ 17,345 $ 17,401 Trailers 12,135 17,144 Marine containers 7,225 8,308 Aircraft -- 7,854 ---------------------------------------- 36,705 50,707 Less accumulated depreciation (27,134 ) (38,170) 9,571 12,537 Equipment held for sale -- 788 Net equipment $ 9,571 $ 13,325 ========================================
PLM EQUIPMENT GROWTH FUND II A Limited Partnership NOTES TO FINANCIAL STATEMENTS September 30, 1998 4. Equipment (continued) As of September 30, 1998, all equipment was either on lease or operating in PLM-affiliated short-term trailer rental facilities, except for 120 marine containers and 3 rail equipment with an aggregate net book value of $0.2 million. As of December 31, 1997, all equipment was either on lease or operating in PLM-affiliated short-term trailer rental facilities, except for 168 marine containers and 3 rail equipment with an aggregate net book value of $0.4 million. During the nine months ended September 30, 1998, the Partnership sold or disposed of an aircraft, marine containers, trailers, and rail equipment, with an aggregate net book value of $1.9 million, for proceeds of $7.8 million. For the nine months ended September 30, 1997, the Partnership sold or disposed of an aircraft, marine containers, trailers, and rail equipment, with an aggregate net book value of $2.9 million, for proceeds of $4.3 million. 5. Investments in Unconsolidated Special-Purpose Entities The net investments in USPEs included the following jointly-owned equipment (and related assets and liabilities) (in thousands of dollars):
September 30, December 31, 1998 1997 --------------------------------------- 50% interest in a Boeing 727-200 aircraft $ 464 $ 1,235 23% interest in a Boeing 727-200 aircraft -- 1,445 Net investments $ 464 $ 2,680 =======================================
During the nine months ended September 30, 1998, the General Partner sold a Boeing 727-200 aircraft in which the Partnership owned a 23% interest, at approximately its net book value. The Partnership received liquidating distributions of $1.4 million from this USPE during the first quarter of 1998. The Partnership's 50% investment in a commercial aircraft was off-lease as of September 30, 1998 and December 31, 1997. 6. Notes Payable During the nine months ended September 30, 1998, the Partnership prepaid the $2.5 million remaining outstanding notes payable. 7. Net Income Per Weighted-Average Depositary Unit Net income per weighted-average depositary unit was computed by dividing net income attributable to limited partners by the weighted-average number of depositary units deemed outstanding during the period. The weighted-average number of depositary units deemed outstanding during the three and nine months ended September 30, 1998 and 1997 was 7,381,805, including 1,150 units held in the Treasury. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (I) RESULTS OF OPERATIONS Comparison of the PLM Equipment Growth Fund II's (the Partnership's) Operating Results for the Three Months Ended September 30, 1998 and 1997 (a) Owned Equipment Operations Lease revenues less direct expenses (defined as repair and maintenance and asset-specific insurance expenses) on owned equipment decreased during the third quarter of 1998 when compared to the same quarter of 1997. The following table presents lease revenues less direct expenses by owned equipment type (in thousands of dollars):
For the Three Months Ended September 30, 1998 1997 ------------------------------- Rail equipment $ 856 $ 795 Trailers 547 697 Marine containers 42 154 Aircraft (2) 459
Rail equipment: Rail equipment lease revenues and direct expenses were $1.1 million and $0.3 million, respectively, for the third quarter of 1998 and 1997. Railcar contribution increased during the third quarter of 1998 due to lower repairs required during 1998 when compared to the same period of 1997. Trailers: Trailer lease revenues and direct expenses were $0.7 million and $0.2 million, respectively, for the third quarter of 1998, compared to $0.9 million and $0.2 million, respectively, during the same quarter of 1997. The number of trailers owned by the Partnership has been declining over the past twelve months due to sales and dispositions. The result of this declining fleet was a decrease in trailer contribution. Marine containers: Marine container lease revenues and direct expenses were $43,000 and $1,000, respectively, for the third quarter of 1998, compared to $0.2 million and $3,000, respectively, during the same quarter of 1997. The number of marine containers owned by the Partnership has been declining over the past twelve months due to sales and dispositions. The result of this declining fleet has been a decrease in marine container revenues. Aircraft: Aircraft lease revenues and direct expenses were $0 and $2,000, respectively, for the third quarter of 1998, compared to $0.5 million and $10,000, respectively, during the same quarter of 1997. Aircraft contribution decreased in the third quarter of 1998, compared to the same quarter of 1997, due to the sale of the remaining aircraft fleet in 1998 and 1997. (b) Indirect Expenses Related to Owned Equipment Operations Total indirect expenses of $0.9 million for the third quarter of 1998 decreased from $2.0 million for the same quarter in 1997. The variances are explained as follows: (i) A $0.4 million decrease in depreciation and amortization expense from 1997 levels reflects the effect of asset sales in 1998 and 1997. (ii) The $0.3 million decrease in bad debt expense was due to a decrease in the General Partner's evaluation of the collectibility of receivables due from certain lessees. (iii) A $0.2 million decrease in administrative expenses from 1997 levels was due to reduced office expenses and professional services required by the Partnership, resulting primarily from the reduced equipment portfolio. (iv) A $0.1 million decrease in interest expense was due to the repayment of the Partnership's outstanding debt. (c) Net Gain on Disposition of Owned Equipment The net gain on disposition of equipment for the third quarter of 1998 totaled $0.3 million, and resulted from the disposal or sale of trailers and marine containers, with an aggregate net book value of $0.1 million, for aggregate proceeds of $0.4 million. For the same quarter in 1997, the $0.3 million net gain on disposition of equipment resulted from the sale or disposal of an aircraft, trailers, marine containers, and rail equipment, with an aggregate net book value of $1.2 million, for aggregate proceeds of $1.5 million. (d) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities Equity in net income (loss) of USPEs represents net income (loss) generated from the operation of jointly-owned assets accounted for under the equity method (see Note 5 to the financial statements). As of September 30, 1998 and 1997, the Partnership owned a 50% interest in an entity which owns a commercial aircraft that was off lease during the third quarter of 1998 and 1997. Expenses were $0.1 for the third quarter of 1998, compared to revenues and expenses of $0.1 million and $0.1 million, respectively, for the same period in 1997. (e) Net Income As a result of the foregoing, the Partnership's net income was $0.8 million for the third quarter of 1998, compared to net income of $0.5 million during the third quarter of 1997. The Partnership's ability to operate and liquidate assets and to re-lease those assets whose leases expire is subject to many factors, and the Partnership's performance in the third quarter of 1998 is not necessarily indicative of future periods. In the third quarter of 1998, the Partnership made regular cash distributions of $1.1 million to the limited partners, or $0.15 per weighted-average depositary unit. Comparison of the Partnership's Operating Results for the Nine Months Ended September 30, 1998 and 1997 (a) Owned Equipment Operations Lease revenues less direct expenses (defined as repair and maintenance, and asset-specific insurance expenses) on owned equipment decreased during the nine months ended September 30, 1998, compared to the same period of 1997. The following table presents lease revenues less direct expenses by owned equipment type (in thousands of dollars):
For the Nine Months Ended September 30, 1998 1997 ------------------------------- Rail equipment $ 2,317 $ 2,596 Trailers 1,581 1,973 Marine containers 172 538 Aircraft 47 1,656
Rail equipment: Rail equipment lease revenues and direct expenses were $3.2 million and $0.9 million, respectively, for the nine months ended September 30, 1998, compared to $3.4 million and $0.8 million, respectively, during the same period of 1997. Lease revenues decreased due to the sale of rail equipment in 1998 and 1997. Rail equipment expenses increased due to running repairs required on certain of the rail equipment during the nine months ended September 30, 1998, which were not needed during 1997. Trailers: Trailer lease revenues and direct expenses were $2.1 million and $0.5 million, respectively, for the nine months ended September 30, 1998, compared to $2.5 million and $0.5 million, respectively, during the same period of 1997. The decrease in net contribution was primarily due to the sale of trailers in 1998 and 1997. Marine containers: Marine container lease revenues were $0.2 million and $0.5 million for the nine months ended September 30, 1998 and 1997, respectively. The number of marine containers owned by the Partnership has been declining over the past twelve months due to sales and dispositions. The result of this declining fleet has been a decrease in marine container revenue. Aircraft: Aircraft lease revenues and direct expenses were $0.1 million and $36,000, respectively, for the nine months ended September 30, 1998, compared to $1.7 million and $30,000, respectively, during the same period of 1997. Aircraft contribution decreased in the nine months ended September 30, 1998, compared to the same period in 1997, due to the sale of the remaining aircraft fleet in 1998 and 1997. (b) Indirect Expenses Related to Owned Equipment Operations Total indirect expenses of $3.1 million for the nine months ended September 30, 1998 decreased from $6.1 million for the same period of 1997. The variances are explained as follows: (i) A $1.5 million decrease in depreciation and amortization expense from 1997 levels reflects the effect of asset sales in 1998 and 1997. (ii) A $0.6 million decrease in bad debt expense was due to a $0.1 million decrease in reserve for a certain lessee resulting from the application of security deposits against uncollected outstanding receivables, the collection of $0.2 million in 1998 of outstanding receivables from certain lessees that were previously reserved for as bad debts in 1997, and a $0.3 million decrease in bad debt expense from a decrease in the General Partner's evaluation of the collectibility of receivables due from certain lessees. (iii) A $0.5 million decrease in interest expense was due to the repayment of the Partnership's outstanding debt. (iv) A $0.3 million decrease in administrative expenses from 1997 levels was due to reduced office expenses and professional services required by the Partnership, resulting primarily from the reduced equipment portfolio. (v) A $0.1 million decrease in management fees to affiliates reflects the lower levels of lease revenues in the nine months ended September 30, 1998, compared to the same period in 1997. (c) Net Gain on Disposition of Owned Equipment The net gain on disposition of equipment for the nine months ended September 30, 1998 totaled $5.9 million, and resulted from the sale or disposal of an aircraft, marine containers, trailers, and rail equipment, with an aggregate net book value of $1.9 million, for aggregate proceeds of $7.8 million. For the nine months ended September 30, 1997, the $1.4 million net gain on disposition of equipment resulted from the sale or disposal of aircraft, marine containers, trailers, and rail equipment, with an aggregate net book value of $2.9 million, for aggregate proceeds of $4.3 million. (d) Equity in Net Loss of Unconsolidated Special-Purpose Entities Equity in net loss of unconsolidated special-purpose entities represents net loss generated from the operation of jointly-owned assets accounted for under the equity method. As of September 30, 1998 and 1997, the Partnership owned a 50% interest in an entity which owns a commercial aircraft that was off lease during the nine months ended September 30, 1998 and 1997. Expenses were $0.4 million, respectively, for the nine months ended September 30, 1998, compared to revenues and expenses of $0.2 million and $1.2 million, respectively, for the same period in 1997. The Partnership's share of revenues decreased in the nine months ended September 30, 1998 due to the sale of its 50% investment in an entity that owned an aircraft engine in the third quarter of 1997. The Partnership's share of expenses decreased due to repairs required during 1997, which were not required for the same period in 1998. During the first quarter of 1998, the General Partner sold for approximately its book value the Partnership's 23% investment in an entity that owned an aircraft. (e) Net Income As a result of the foregoing, the Partnership's net income was $6.7 million for the nine months ended September 30, 1998, compared to net income of $1.1 million during the same period of 1997. The Partnership's ability to operate and liquidate assets and to re-lease those assets whose leases expire is subject to many factors, and the Partnership's performance in the nine months ended September 30, 1998 is not necessarily indicative of future periods. In the nine months ended September 30, 1998, the Partnership distributed regular cash distributions of $3.3 million to the limited partners, or $0.45 per weighted-average depositary unit. In addition, the Partnership made a special distribution of $3.7 million to the limited partners, or $0.50 per weighted-average depositary unit. (II) FINANCIAL CONDITION -- CAPITAL RESOURCES AND LIQUIDITY The General Partner purchased the Partnership's initial equipment portfolio with capital raised from its initial equity offering and permanent debt financing. No further capital contributions from original partners are permitted under the terms of the limited partnership agreement. As of September 30, 1998, the Partnership had no outstanding indebtedness. The Partnership relies on operating cash flow to meet its operating obligations and make cash distributions to the limited partners. In the nine months ended September 30, 1998, the Partnership used $2.5 million in proceeds from the sale of assets to prepay the outstanding debt. For the nine months ended September 30, 1998, the Partnership generated $3.3 million in operating cash (net cash provided by operating activities plus non-liquidating distributions from unconsolidated special-purpose entities) to meet its operating obligations, but used undistributed available cash from prior periods of approximately $0.2 million to maintain the level of regular cash distributions (total of $3.5 million or $0.45 per weighted average depositary unit) in the nine months ended September 30, 1998) to the partners. During the nine months ended September 30, 1998, the General Partner sold owned equipment on behalf of the Partnership and realized proceeds of approximately $7.8 million. A special distribution of $3.9 million ($0.50 per weighted-average depositary unit) was paid on May 21, 1998. During the nine months ended September 30, 1998, the Partnership sold or disposed of aircraft, marine containers, trailers, and rail equipment, with an aggregate net book value of $1.9 million, for aggregate proceeds of $7.8 million. (III) EFFECTS OF YEAR 2000 It is possible that the General Partner's currently installed computer systems, software products and other business systems, or the Partnership's vendors, service providers, and customers, working either alone or in conjunction with other software or systems, may not accept input of, store, manipulate, and output dates on or after January 1, 2000 without error or interruption (a problem commonly known as the "Year 2000" problem). As the Partnership relies substantially on the General Partner's software systems, applications, and control devices in operating and monitoring significant aspects of its business, any Year 2000 problem suffered by the General Partner could have a material adverse effect on the Partnership's business, financial condition, and results of operations. The General Partner has established a special Year 2000 oversight committee to review the impact of Year 2000 issues on its software products and other business systems in order to determine whether such systems will retain functionality after December 31, 1999. The General Partner (a) is currently integrating Year 2000-compliant programming code into its existing internally customized and internally developed transaction processing software systems and (b) the General Partner's accounting and asset management software systems have either already been made Year 2000-compliant or Year 2000- compliant upgrades of such systems are planned to be implemented by the General Partner before the end of fiscal year 1999. Although the General Partner believes that its Year 2000 compliance program can be completed by the beginning of 1999, there can be no assurance that the compliance program will be completed by that date. To date, the costs incurred and allocated to the Partnership to become Year 2000- compliant have not been material. In addition, the General Partner believes the future costs allocable to the Partnership to become Year 2000-compliant will not be material. Some risks associated with the Year 2000 problem are beyond the ability of the Partnership to control, including the extent to which third parties can address the Year 2000 problem. The General Partner has begun to communicate with vendors, services providers, and customers in order to assess the Year 2000 compliance readiness of such parties and the extent to which the Partnership is vulnerable to any third-party Year 2000 issues. There can be no assurance that the software systems of such parties will be converted or made Year 2000-compliant in a timely manner. Any failure by the General Partner or such other parties to make their respective systems Year 2000-compliant could have a material adverse effect on the business, financial position and results of operations of the Partnership. The General Partner will make an ongoing effort to recognize and evaluate potential exposure relating to third-party Year 2000 non-compliance and will develop a contingency plan if the General Partner determines, or is unable to determine, that third-party non-compliance will have a material adverse effect on the Partnership's business, financial position, or results of operation. (IV) ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued two new statements: SFAS No. 130, "Reporting Comprehensive Income," which requires enterprises to report, by major component and in total, all changes in equity from nonowner sources; and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes annual and interim reporting standards for a public company's operating segments and related disclosures about its products, services, geographic areas, and major customers. Both statements are effective for the Partnership's fiscal year ended December 31, 1998, with earlier application permitted. The effect of adoption of these statements will be limited to the form and content of the Partnership's disclosures and will not impact the Partnership's results of operations, cash flow, or financial position. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, by requiring that an entity recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. This statement is effective for all quarters of fiscal years beginning after June 15, 1999. As of September 30, 1998, the General Partner is reviewing the effect this standard will have on the Partnership's consolidated financial statements. (V) OUTLOOK FOR THE FUTURE Since the Partnership is in its orderly liquidation phase, the General Partner will be seeking to selectively re-lease or sell assets as the existing leases expire. Sale decisions will cause the operating performance of the Partnership to decline over the remainder of its life. Several factors may affect the Partnership's operating performance in 1998 and beyond, including changes in the markets for the Partnership's equipment and changes in the regulatory environment in which that equipment operates. The Partnership's operation of a diversified equipment portfolio in a broad base of markets is intended to reduce its exposure to volatility in individual equipment sectors. The ability of the Partnership to realize acceptable lease rates on its equipment in the different equipment markets is contingent on many factors, such as specific market conditions and economic activity, technological obsolescence, and government or other regulations. The unpredictability of some of these factors, or of their occurrence, makes it difficult for the General Partner to clearly define trends or influences that may impact the performance of the Partnership's equipment. The General Partner continually monitors both the equipment markets and the performance of the Partnership's equipment in these markets. The General Partner may make an evaluation to reduce the Partnership's exposure to equipment markets in which it determines that it cannot operate equipment and achieve acceptable rates of return. The Partnership intends to use cash flow from operations to satisfy its operating requirements and pay cash distributions to the investors. (VI) FORWARD-LOOKING INFORMATION Except for historical information contained herein, the discussion in this Form 10-Q contains forward-looking statements that involve risks and uncertainties, such as statements of the Partnership's plans, objectives, expectations, and intentions. The cautionary statements made in this Form 10-Q should be read as being applicable to all related forward-looking statements wherever they appear in this Form 10-Q. The Partnership's actual results could differ materially from those discussed here. (This space intentionally left blank.) 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: November 4, 1998 By: /s/ Richard Brock ----------------- Richard Brock Vice President and Corporate Controller EX-27 2
5 1,000 9-MOS DEC-31-1998 SEP-30-1998 3,235 0 1,099 85 0 0 36,705 27,134 14,287 0 0 0 0 0 13,058 14,287 0 11,665 0 0 4,629 (68) 47 6,686 0 6,686 0 0 0 6,686 0.86 0.86
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