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 JUNE 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)
June 30, December 31,
2000 1999
-----------------------------
ASSETS
Equipment held for operating lease, at cost $ 29,548 $ 32,487
Less accumulated depreciation (24,196) (25,815)
-----------------------------
Net equipment 5,352 6,672
Cash and cash equivalents 1,608 894
Accounts receivable, less allowance for doubtful
accounts of $121 in 2000 and $107 in 1999 869 877
Investment in an unconsolidated special-purpose entity -- 368
Prepaid expenses and other assets 17 47
------------------------------
Total assets $ 7,846 $ 8,858
=============================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 241 $ 352
Due to affiliates 67 67
Lessee deposits and reserve for repairs 716 783
-----------------------------
Total liabilities 1,024 1,202
-----------------------------
Partners' capital:
Limited partners (7,381,805 depositary units as of
June 30, 2000 and December 31, 1999) 6,822 7,656
General Partner -- --
-----------------------------
Total partners' capital 6,822 7,656
-----------------------------
Total liabilities and partners' capital $ 7,846 $ 8,858
=============================
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 Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
--------------------------------------------------------------
Revenues
Lease revenue $ 1,361 $ 1,420 $ 2,866 $ 2,877
Interest and other income 26 19 36 43
Net gain on disposition of equipment 523 81 502 233
--------------------------------------------------------------
Total revenues 1,910 1,520 3,404 3,153
--------------------------------------------------------------
Expenses
Depreciation 413 488 845 1,002
Repairs and maintenance 449 411 859 805
Equipment operating expenses 44 38 89 68
Management fees to affiliate 66 63 143 142
General and administrative expenses
to affiliates 52 57 119 140
Other general and administrative expenses 183 136 427 317
Provision for bad debts 19 13 10 10
--------------------------------------------------------------
Total expenses 1,226 1,206 2,492 2,484
--------------------------------------------------------------
Equity in net income (loss) of an
unconsolidated special-purpose entity (60) (180) 1,304 (313 )
--------------------------------------------------------------
Net income $ 624 $ 134 $ 2,216 $ 356
==============================================================
Partners' share of net income:
Limited partners $ 528 $ 77 $ 2,063 $ 243
General Partner 96 57 153 113
--------------------------------------------------------------
Total $ 624 $ 134 $ 2,216 $ 356
==============================================================
Limited partners' net income per weighted-
average depositary unit $ 0.07 $ 0.01 $ 0.28 $ 0.03
==============================================================
Cash distributions $ 1,136 $ 1,136 $ 2,273 $ 2,273
Special cash distributions 777 -- 777 --
==============================================================
Total cash distributions $ 1,913 $ 1,136 $ 3,050 $ 2,273
==============================================================
Per weighted-average depositary unit:
Cash distributions $ 0.15 0.15 $ 0.29 $ 0.29
Special cash distributions 0.10 -- 0.10 --
==============================================================
Total cash distributions $ 0.25 0.15 $ 0.39 $ 0.29
==============================================================
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 JUNE 30, 2000
(in thousands of dollars)
Limited General
Partners Partner Total
---------------------------------------------------
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 2,063 153 2,216
Cash distribution (2,159) (114) (2,273)
Special cash distribution (738) (39) (777)
---------------------------------------------------
Partners' capital as of June 30, 2000 $ 6,822 $ -- 6,822
===================================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
For the Six Months
Ended June 30,
2000 1999
-----------------------------------
OPERATING ACTIVITIES
Net income $ 2,216 $ 356
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 845 1,002
Net gain on disposition of equipment (502) (233)
Equity in net (income) loss from an unconsolidated special-purpose
entity (1,304) 313
Changes in operating assets and liabilities:
Accounts receivable, net 8 208
Prepaid expenses and other assets 30 19
Accounts payable and accrued expenses (111) (2)
Due to affiliates -- (26)
Lessee deposits and reserve for repairs (67) 95
-----------------------------------
Net cash provided by operating activities 1,115 1,732
-----------------------------------
Investing activities
Proceeds from disposition of equipment 977 529
Liquidation distributions from an unconsolidated special-purpose entity 1,824 --
Additional investments in an unconsolidated special-purpose entity (152) (417)
-----------------------------------
Net cash provided by investing activities 2,649 112
-----------------------------------
Financing activities
Cash distribution paid to limited partners (2,159) (2,160)
Cash distribution paid to General Partner (114) (113)
Special cash distribution paid to limited partners (738) --
Special cash distribution paid to General Partner (39) --
-----------------------------------
Net cash used in financing activities (3,050) (2,273)
-----------------------------------
Net increase (decrease) in cash and cash equivalents 714 (429)
Cash and cash equivalents at beginning of period 894 1,986
-----------------------------------
Cash and cash equivalents at end of period $ 1,608 $ 1,557
===================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 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 June 30, 2000 and December 31, 1999, the
statements of income for the three and six months ended June 30, 2000 and
1999, the statements of changes in partners' capital for the period from
December 31, 1998 to June 30, 2000, and the statements of cash flows for
the six months ended June 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
six months ended June 30, 2000 and 1999, cash distributions totaled $2.3
million. For the three months ended June 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 three and six months ended
June 30, 2000, from the proceeds realized on the sale of equipment in 2000
and 1999. No special distributions were paid in the three and six months
ended June 30, 1999. Cash distributions to the limited partners of $0.8
million and $1.9 million for the six months ended June 30, 2000 and 1999,
respectively, were deemed to be a return of capital.
Cash distributions related to the results from the second quarter of 2000
of $1.1 million, will be paid
during August 2000.
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
5. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES
Partnership management fees of $0.1 million were payable as of June 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 $3,000 for the six months ended June 30, 2000
and 1999, respectively and $1,000 and $3,000 for the three months ended
June 30, 2000 and 1999, respectively.
6. EQUIPMENT
The components of owned equipment were as follows (in thousands of
dollars):
June 30, December 31,
2000 1999
----------------------------------
Railcars $ 14,988 $ 16,249
Trailers 10,404 10,606
Marine containers 4,156 5,632
---------------------------------
29,548 32,487
Less accumulated depreciation (24,196) (25,815)
---------------------------------
Net equipment $ 5,352 $ 6,672
=================================
As of June 30, 2000, all equipment was either on lease or operating in
PLM-affiliated short-term trailer rental facilities, except for 148 marine
containers and 8 railcars with an aggregate net book value of $0.2 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 six months ended June 30, 2000, the Partnership sold or disposed
of marine containers, trailers, and railcars, with an aggregate net book
value of $0.5 million, for proceeds of $1.0 million.
For the six months ended June 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 $0.5 million.
On May 24, 2000, FSI, on behalf of the Partnership, entered into an asset
purchase agreement to sell the refrigerated and dry trailer assets of the
Partnership. Closing of the transaction is contingent on numerous
conditions. If the sale is completed, the General Partner estimates that
the Partnership's sale proceeds to be approximately $0.3 million and will
result in a gain of approximately $0.3 million. Since the sale of the
trailers is contingent upon certain conditions being met, the refrigerated
and dry trailers are not classified as assets held for sale.
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 six months ended June 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
JUNE 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):
Marine
Railcar Trailer Container Aircraft All
For the quarter ended June 30, 2000 Leasing Leasing Leasing Leasing Other<F1>1 Total
----------------------------------- ------- ------- ------- ------- ---- -----
REVENUES
Lease revenue $ 887 $ 458 $ 16 $ -- $ -- $ 1,361
Interest income and other -- -- -- -- 26 26
Gain on disposition of equipment 508 2 13 -- -- 523
--------------------------------------------------------------
Total revenues 1,395 460 29 -- 26 1,910
COSTS AND EXPENSES
Operations support 333 150 1 -- 9 493
Depreciation 187 171 55 -- -- 413
Management fees 43 22 1 -- -- 66
General and administrative 89 52 1 1 92 235
expenses
Provision for (recovery of) bad 26 (7) -- -- -- 19
debts
--------------------------------------------------------------
Total costs and expenses 678 388 58 1 101 1,226
--------------------------------------------------------------
Equity in net loss of USPE -- -- -- (60) -- (60)
--------------------------------------------------------------
Net income (loss) $ 717 $ 72 $ (29) $ (61) $ (75) $ 624
==============================================================
Total assets as of June 30, 2000 $ 1,668 $ 4,031 $ 522 $ -- $ 1,625 $ 7,846
==============================================================
Marine
Railcar Trailer Container Aircraft All
For the quarter ended June 30, 1999 Leasing Leasing Leasing Leasing Other<F1>1 Total
----------------------------------- ------- ------- ------- ------- ---- -----
Revenues
Lease revenue $ 850 $ 534 $ 36 $ -- $ -- $ 1,420
Interest income and other -- -- (1 ) -- 20 19
Gain on disposition of equipment -- 61 20 -- -- 81
--------------------------------------------------------------
Total revenues 850 595 55 -- 20 1,520
Costs and expenses
Operations support 280 165 -- -- 4 449
Depreciation 192 211 85 -- -- 488
Management fees 42 20 1 -- -- 63
General and administrative 42 60 3 1 87 193
expenses
(Recovery of) provision for bad (4) 18 (1 ) -- -- 13
debts
--------------------------------------------------------------
Total costs and expenses 552 474 88 1 91 1,206
--------------------------------------------------------------
Equity in net loss of USPE -- -- -- (180) -- (180)
--------------------------------------------------------------
Net income (loss) $ 298 $ 121 $ (33 )$ (181) $ (71) $ 134
==============================================================
Total assets as of June 30, 1999 $ 2,578 $ 4,669 $ 978 $ 598 $ 1,801 $ 10,624
==============================================================
<FN>
<F1>
-------------------------------------
1 Includes interest income and costs not identifiable to a particular
segment, such as certain operations support and general and
administrative expenses.
</FN>
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
8. OPERATING SEGMENTS (CONTINUED)
Marine
Railcar Trailer Container Aircraft All
For the six months ended June 30, 2000 Leasing Leasing Leasing Leasing Other<F1>1 Total
- ----------------------------------------- ------- ------- ------- ------- ---- -----
REVENUES
Lease revenue $ 1,794 $ 983 $ 89 $ -- $ -- $ 2,866
Interest income and other -- -- -- -- 36 36
Gain (loss) on disposition of 576 21 (95) -- -- 502
equipment
--------------------------------------------------------------
Total revenues 2,370 1,004 (6) -- 36 3,404
COSTS AND EXPENSES
Operations support 598 329 2 -- 19 948
Depreciation 379 343 123 -- -- 845
Management fees 88 50 5 -- -- 143
General and administrative 126 141 3 1 275 546
expenses
Provision for (recovery of) bad 29 (19) -- -- -- 10
debts
--------------------------------------------------------------
Total costs and expenses 1,220 844 133 1 294 2,492
--------------------------------------------------------------
Equity in net income of USPE -- -- -- 1,304 -- 1,304
--------------------------------------------------------------
Net income (loss) $ 1,150 $ 160 $ (139 )$ 1,303 $ (258 )$ 2,216
==============================================================
Total assets as of June 30, 2000 $ 1,668 $ 4,031 $ 522 $ -- $ 1,625 $ 7,846
==============================================================
Marine
Railcar Trailer Container Aircraft All
For the six months ended June 30, 1999 Leasing Leasing Leasing Leasing Other<F1>1 Total
- ----------------------------------------- ------- ------- ------- ------- ---- -----
REVENUES
Lease revenue $ 1,802 $ 998 $ 77 $ -- $ -- $ 2,877
Interest income and other -- -- (1) -- 44 43
Gain (loss) on disposition of 192 103 (62) -- -- 233
equipment
--------------------------------------------------------------
Total revenues 1,994 1,101 14 -- 44 3,153
COSTS AND EXPENSES
Operations support 575 289 1 -- 8 873
Depreciation 393 436 173 -- -- 1,002
Management fees 89 49 4 -- -- 142
General and administrative 88 133 6 1 229 457
expenses
(Recovery of) provision for bad (10) 20 -- -- -- 10
debts
--------------------------------------------------------------
Total costs and expenses 1,135 927 184 1 237 2,484
--------------------------------------------------------------
Equity in net loss of USPE -- -- -- (313) -- (313)
--------------------------------------------------------------
Net income (loss) $ 859 $ 174 $ (170) $ (314) $ (193) $ 356
==============================================================
Total assets as of June 30, 1999 $ 2,578 $ 4,669 $ 978 $ 598 $ 1,801 $ 10,624
==============================================================
<FN>
<F1>
-------------------------------------
1 Includes interest income and costs not identifiable to a particular
segment, such as certain operations support and general and
administrative expenses.
</FN>
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 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 six months ended June 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.
In the six months ended June 30, 2000, the General Partner paid special
distributions of $0.10 per weighted-average depositary unit. No special
distibutions were paid in the six months ended June 30, 1999. 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 limited partners in the form of
special distributions. The sales and liquidations occur because of certain
damaged equipment, 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 leases, the ability of the lessee to exercise purchase
options.
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 JUNE 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 second
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 June 30,
2000 1999
----------------------------
Railcars $ 554 $ 570
Trailers 308 369
Marine containers 15 36
Railcars: Railcar lease revenues and direct expenses were $0.9 million and $0.3
million, respectively, for the second quarter of 2000 and 1999. The decrease in
railcar contribution in the second quarter of 2000 was due to the sale or
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 second quarter of 2000 and 1999. The decrease in
trailer contribution in the second quarter of 2000 was due to the sale or
disposition of trailers in 1999 and 2000.
Marine containers: Marine container lease revenues were $15,000 and $36,000
during the second quarter of 2000 and 1999, respectively. The decrease in marine
container contribution in the second quarter of 2000 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 second 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 sales in 2000 and 1999.
(C) Net Gain on Disposition of Owned Equipment
Net gain on disposition of equipment for the second quarter of 2000 totaled $0.5
million, and resulted from the disposal or sale of marine containers, trailers,
and railcars, with an aggregate net book value of $0.3 million, for aggregate
proceeds of $0.8 million. For the same quarter in 1999, net gain on disposition
of equipment totaled $0.1 million, and resulted from the disposal or sale of
trailers, and marine containers, with an aggregate net book value of $19,000,
for aggregate proceeds of $0.1 million.
(D) Equity in Net Loss of an Unconsolidated Special-Purpose Entity (USPE)
Equity in the net 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 June 30, 2000, the Partnership had no remaining interests in entities
which owned aircraft. Expenses were $0.1 million and $0.2 million for the second
quarter of 2000 and 1999, respectively. The Partnership's remaining
partially-owned aircraft was sold in the first quarter of 2000.
(E) Net Income
As a result of the foregoing, the Partnership's net income was $0.6 million for
the second quarter of 2000, compared to net income of $0.1 million during the
second 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 second quarter of 2000
is not necessarily indicative of future periods. In the second quarter of 2000,
the Partnership distributed $1.1 million to the limited partners, or $0.15 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 second quarter of 2000.
COMPARISON OF THE PARTNERSHIP'S OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE
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 six months
ended June 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 Six Months
Ended June 30,
2000 1999
----------------------------
Railcars $ 1,196 $ 1,227
Trailers 654 709
Marine containers 87 76
Railcars: Railcar lease revenues and direct expenses were $1.8 million and $0.6
million, respectively, for the six months ended June 30, 2000 and 1999. The
decrease in railcar contribution in the six months ended June 30, 2000 was due
to the sale or disposition of railcars in 1999 and 2000.
Trailers: Trailer lease revenues and direct expenses were $1.0 million and $0.3
million, respectively, for the six months ended June 30, 2000 and 1999. Lease
revenue increased $0.1 million in the six months ended June 30, 2000 compared to
the same period in 1999 due to higher utilization. This increase in lease
revenue was offset, in part, by a decrease of $0.1 million due to sales and
dispositions of trailers during 1999 and 2000.
Marine containers: Marine container lease revenues were $0.1 million during the
six months ended June 30, 2000 and 1999. Lease revenue increased $0.1 million in
the six months ended June 30, 2000 compared to the same period in 1999, due to
higher utilization of the container fleet. The increase was offset, in part, by
a decrease in lease revenue of $0.1 million due to the reduction in the marine
container fleet resulting from the sales and dispositions over the past twelve
months.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $1.5 million for the six months ended June 30, 2000
decreased from $1.6 million for the same period in 1999. Significant variances
are explained as follows:
(i) A $0.2 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 increased professional services required by the Partnership.
(C) Net Gain on Disposition of Owned Equipment
Net gain on disposition of equipment for the six months ended June 30, 2000
totaled $0.5 million, and resulted from the disposal or sale of marine
containers, trailers, and railcars, with an aggregate net book value of $0.5
million, for aggregate proceeds of $1.0 million. For the same period in 1999,
net gain on disposition of equipment totaled $0.2 million, and resulted from the
sale or disposal of marine containers, trailers, and railcars, with an aggregate
net book value of $0.3 million, for aggregate proceeds of $0.5 million.
(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 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 June 30, 2000, the Partnership had no remaining interests in entities
which owned aircraft. During the six months ended June 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 $0.2 million. During the same period of
1999, depreciation expense, direct expenses, and administrative expenses were
$0.3 million.
(E) Net Income
As a result of the foregoing, the Partnership's net income was $2.2 million for
the six months ended June 30, 2000, compared to net income of $0.4 million
during the six months ended June 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 six
months ended June 30, 2000 is not necessarily indicative of future periods. In
the six months ended June 30, 2000, the Partnership distributed $2.2 million to
the limited partners, or $0.29 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 six months of 2000.
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES AND LIQUIDITY
For the six months ended June 30, 2000, the Partnership generated $1.0 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 distibutions from USPEs of approximately $2.1 million to
make the distributions (total of $3.1 million in the six months ended June 30,
2000, which includes a special distribution of $0.8 million) to the partners.
During the six months ended June 30, 2000, the Partnership sold or disposed of
marine containers, trailers, and railcars, with an aggregate net book value of
$0.5 million, for proceeds of $1.0 million. The Partnership also received
liquidating proceeds of $1.8 million from the sale of its interest in an entity
owning an aircraft.
Lessee deposits and reserve for repairs decreased $0.1 million during the six
months ended June 30, 2000 due to fewer lessees prepaying future lease revenue
at June 30, 2000 compared to December 31, 1999.
Accounts payable decreased $0.1 million during the six months ended June 30,
2000 due to a decrease in trade accounts payable resulting from the reduction of
the size of the Partnership's equipment portfolio.
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. Another factor affecting the Partnership's contribution in 2000 and
beyond is 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 rising per diem lease rates.
Demand, however, for some of the Partnership's refrigerated marine containers
have been weak, as they are older containers. These marine containers are
currently off lease and the General Partner plans to dispose of these
containers.
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 six months ended June 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.
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: August 4, 2000 By: /s/ Richard K Brock
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Richard K Brock
Chief Financial Officer