-----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, Fk5WfY1R98RA7L4Vd0yfaUkKvkD9OucWExkfrecuGHw+jMSjLBoKDznacFJd3cq3 euw/A1d9z83HDqa9UIX3eA== 0000812072-99-000013.txt : 19991028 0000812072-99-000013.hdr.sgml : 19991028 ACCESSION NUMBER: 0000812072-99-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991027 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: 99735452 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 EGF2-3Q99 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)
September 30, December 31, 1999 1998 ------------------------------------ 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 ====================================
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, 1999 1998 1999 1998 -------------------------------------------------------------- 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 ==============================================================
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)
Limited General Partners Partner Total --------------------------------------------------- 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 ===================================================
See accompanying notes to financial statements. PLM EQUIPMENT GROWTH FUND II (A Limited Partnership) STATEMENTS OF CASH FLOWS (in thousands of dollars)
For the Nine Months Ended September 30, 1999 1998 ----------------------------------- 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 ===================================
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):
Marine For the three months ended Railcar Trailer Container Aircraft September 30, 1999 Leasing Leasing Leasing Leasing All Total Other 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 ==============================================================
Marine For the three months ended Railcar Trailer Container Aircraft September 30, 1998 Leasing Leasing Leasing Leasing All Total Other 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 ============================================================== _____________________________________ Includes interest income and costs not identifiable to a particular segment, such as interest expense, certain operations support, and general and administrative expenses.
PLM EQUIPMENT GROWTH FUND II (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS September 30, 1999 8. OPERATING SEGMENTS (CONTINUED)
Marine For the nine months ended Railcar Trailer Container Aircraft All September 30, 1999 Leasing Leasing Leasing Leasing Other Total 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 ==============================================================
Marine For the nine months ended Railcar Trailer Container Aircraft All September 30, 1998 Leasing Leasing Leasing Leasing Other Total 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 ============================================================== _____________________________________ Includes interest income and costs not identifiable to a particular segment, such as interest expense, certain operations support, and general and administrative expenses.
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 EX-27 2 FDS --
5 PLM Equipment Growth Fund 2 0000812072 PLM Equipment Growth Fund 2 1,000 US 9-mos Dec-31-1999 Jan-1-1999 Sep-30-1999 1 1,033 0 837 (99) 0 0 33,218 (26,031) 9,487 0 0 0 0 0 8,458 9,487 0 4,675 0 0 3,653 13 0 600 0 600 0 0 0 600 0.06 0.06
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