UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal quarter ended March 31, 1995.
[ ] 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 33-32258
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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 900, 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 ______
Indicate the number of units outstanding of each of the issuer's classes of
partnership units, as of the latest practicable date:
Class Outstanding at May 12, 1995
Limited Partnership Depositary Units 7,442,805
General Partnership Units: 1
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
BALANCE SHEETS
(in thousands of dollars)
ASSETS
March 31, December 31,
1995 1994
Equipment held for operating leases $ 119,053 $ 128,784
Less accumulated depreciation (70,666) (74,672)
--------- ---------
48,387 54,112
Equipment held for sale 3,347 --
--------- ---------
Net equipment 51,734 54,112
Cash and cash equivalents 4,024 12,348
Restricted cash 208 296
Accounts receivable, less allowance
for doubtful accounts of $439 in 1995
and $427 in 1994 2,535 2,258
Deferred charges, net of accumulated
amortization of $1,423 in 1995
and $1,798 in 1994 354 385
Prepaid expenses and other assets 47 86
--------- ---------
Total assets $ 58,902 $ 69,485
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 907 $ 867
Due to affiliates 203 236
Notes payable 28,000 35,000
Prepaid deposits and reserve for repairs 2,721 3,229
-------- --------
Total liabilities 31,831 39,332
Partners' capital (deficit):
Limited Partners (7,452,505 and 7,472,705
Depositary Units, including 1,150
Depositary Units held in the Treasury) at
March 31, 1995 and December 31, 1994 27,742 30,850
General Partner (671) (697)
-------- --------
Total partners' capital 27,071 30,153
-------- --------
Total liabilities and partners'
capital $ 58,902 $ 69,485
======== ========
See accompanying notes to financial
statements.
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PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
STATEMENTS OF INCOME
(thousands of dollars except per unit amounts)
For the three months
ended March 31,
1995 1994
Revenues:
Lease revenue $ 4,531 $ 6,169
Interest and other income 145 113
Net gain on disposition of
equipment 50 581
------- -------
Total revenues 4,726 6,863
Expenses:
Depreciation and amortization 2,345 2,757
Management fees to affiliate 238 299
Interest expense 712 550
Insurance expense to affiliate 87 (73)
Other insurance expense 17 65
Repairs and maintenance 554 1,321
Marine equipment operating
expenses (34) 791
General and administrative
expenses to affiliates 231 180
Other general and administrative
expenses 328 207
------- -------
Total expenses 4,478 6,097
------- -------
Net income $ 248 $ 766
======= =======
Partners' share of net income:
Limited Partners $ 65 $ 608
General Partner 183 158
------- -------
Total $ 248 $ 766
======= =======
Net income per Depositary Unit
(7,452,505 and 7,454,505 Units,
including 1,150 Units held in Treasury
at March 31, 1995 and 1994, respectively) $ 0.01 $ 0.08
======= =======
Cash distributions $ 3,146 $ 3,155
======= =======
Cash distributions per Depositary Unit $ 0.40 $ 0.40
======= =======
See accompanying notes to financial
statements.
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PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the period ended December 31, 1993 to March
31, 1995
(thousands of dollars)
Limited General
Partners Partner Total
Partners' capital (deficit)
at December 31, 1993 $ 43,894 $ (1,032) $ 42,862
Net income (loss) (899) 966 67
Cash distributions (11,989) (631) (12,620)
Repurchase of Depositary Units (156) -- (156)
--------- --------- ---------
Partners' capital (deficit)
at December 31, 1994 30,850 (697) 30,153
Net income 65 183 248
Cash distributions (2,989) (157) (3,146)
Repurchase of Depositary Units (184) -- (184)
--------- --------- ---------
Partners' capital (deficit)
at March 31, 1995 $ 27,742 $ (671) $ 27,071
========= ========= =========
See accompanying notes to financial
statements.
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PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
(thousands of dollars)
For the three months
ended March 31,
1995 1994
Operating activities:
Net income $ 248 $ 766
Adjustments to reconcile net income to
net cash provided by operating activities:
Net gain on disposition of equipment (50) (581)
Depreciation and amortization 2,345 2,757
Changes in operating assets and liabilities:
Restricted cash 88 303
Accounts receivable, net (277) 578
Due to affiliates (36) (98)
Prepaid expenses and other assets 39 30
Accounts payable and accrued expenses 40 (694)
Prepaid deposits and reserve for repairs (508) 1,660
-------- --------
Net cash provided by operating activities 1,889 4,721
-------- --------
Investing activities:
Proceeds from disposition of equipment 125 1,685
Payments of acquisition-related fees to affiliate -- (22)
Payments for purchase of equipment -- (501)
Payments for capital improvements (8) (450)
Payments for lease negotiation fees -- (5)
-------- --------
Net cash provided by investing activities 117 707
-------- --------
Financing activities:
Principal payments on notes payable (7,000) --
Cash distributions paid to partners (3,146) (3,155)
Payments of debt issuance costs -- (236)
Repurchase of depositary units (184) --
-------- --------
Net cash used in financing activities (10,330) (3,391)
-------- --------
Cash and cash equivalents:
Net (decrease) increase in cash and cash equivalents (8,324) 2,037
Cash and cash equivalents at beginning of period 12,348 5,996
-------- --------
Cash and cash equivalents at end of period $ 4,024 $ 8,033
======== ========
Supplemental information:
Interest paid $ 704 $ 550
======== ========
See accompanying notes to financial
statements.
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PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
March 31, 1995
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 March 31, 1995, the statements of income
and cash flows for the three months ended March 31, 1995 and 1994. 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, 1994, on file
at the Securities and Exchange Commission.
2. Reclassification
Certain amounts in the 1994 financial statements have been reclassified to
conform with the 1995 presentation.
3. Cash Distributions
Cash distributions are recorded when paid and totaled $3,146,000 and
$3,155,000 for the three months ended March 31, 1995 and 1994,
respectively. Cash distributions to unitholders in excess of net income
are considered to represent a return of capital. Cash distributions to
unitholders of 2,924,000 and 2,389,000 for the three months ended March
31, 1995, and 1994, respectively, were deemed to be a return of capital.
Cash distributions of $2,981,000 ($0.40 per Depositary Unit) were declared
on March 16, 1995, and are to be paid on May 15, 1995, to the unitholders
of record as of March 31, 1995.
4. Repurchase of Depository Units
On December 28, 1992, the Partnership engaged in a program to repurchase
up to 200,000 Depository Units. In the three months ended March 31, 1995,
the Partnership had purchased and canceled 20,200 Depository Units at a
cost of $0.2 million. As of March 31, 1995, the Partnership had
cumulatively repurchased 47,100 Depository Units at a cost of $0.5
million.
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PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
March 31, 1995
5. Equipment
Equipment held for operating leases is stated at cost. Equipment held for
sale is stated at the lower of the equipment's depreciated cost or net
realizable value and is subject to a pending contract for sale. The
components of equipment are as follows (in thousands):
March 31, December 31,
1995 1994
Equipment held for operating leases:
Rail equipment $ 19,760 $ 19,749
Marine containers 17,705 17,939
Marine vessel -- 4,702
Aircraft 45,838 50,644
Trailers and tractors 23,092 23,092
Mobile offshore drilling unit 12,658 12,658
--------- ---------
119,053 128,784
Less accumulated depreciation (70,666) (74,672)
--------- ---------
48,387 54,112
Equipment held for sale 3,347 --
--------- ---------
Net Equipment $ 51,734 $ 54,112
========= =========
Revenues are earned by placing the equipment under operating leases which
are generally billed monthly or quarterly. The Partnership's marine vessel
and certain of its marine containers are leased to operators of
utilization-type leasing pools which include equipment owned by
unaffiliated parties. In such instances revenues received by the
Partnership consist of a specified percentage of revenues generated by
leasing the equipment to sublessees, after deducting certain direct
operating expenses of the pooled equipment. Rents for railcars are based
on mileage travelled or a fixed rate; rents for all other equipment are
based on fixed rates.
As of March 31, 1995, all equipment in the Partnership portfolio was
either on lease or operating in PLM-affiliated short-term trailer rental
facilities, except for two aircraft, 12 railcars, one tractor, and 243
marine containers. The aggregate carrying value of equipment off lease was
$5,280,000 at March 31, 1995.
During the three months ended March 31, 1995, the Partnership disposed of
61 marine containers, with a net book value of $75,000, for proceeds of
$125,000. For the three months ended March 31, 1994, the Partnership sold
or disposed of 95 marine containers and 261 trailers, with an aggregate
net book value of $1.1 million, for proceeds of $1.7 million.
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PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
March 31, 1995
6. Notes Payable
On March 31, 1995, the Partnership prepaid $7,000,000 of the outstanding
notes payable of $35 million. This payment was applied to the principal
payments due March 31, 1996 and 1997.
7. Subsequent Event
In April of 1995, a DC-9 aircraft, of which the Partnership owns a 50%
interest, was sold for proceeds of $1.25 million. In May of 1995, the
Partnership sold a 50% interest in a marine vessel with a carrying value
of $2.1 million for approximately $2.4 million, net of selling costs.
Included in the gain on sale of the marine vessel is the unused portion of
accrued drydocking of $0.3 million. The aircraft and marine vessel were
classified as equipment held for sale at March 31, 1995.
-7-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
(A) Results of Operations - Quarter over Quarter Summary
The Partnership's operating income before depreciation, amortization, and
gain/loss on sales declined by approximately 14% in the first quarter of 1995
from the same period in 1994. This decline is attributable primarily to:
- - sales or liquidations of equipment subsequent to the first quarter 1994, as
the Partnership sold its 12.5% interest in a rig in December 1994, sold two
marine vessels in September of 1994, sold 261 trailers at the end of March 1994,
and realized the liquidation or disposal of approximately 484 containers in the
12 month period ended March 31, 1995;
- - a 60% reduction in lease rate for one of the Partnership's aircraft as its
lease was renegotiated in the third quarter of 1994, a reduction in contribution
from aircraft in the first quarter 1995 as one aircraft came off-lease in
January while another was off- lease undergoing maintenance, and a reduction of
31% in daily lease rate for its rig in which the Partnership owns a 55% interest
effective January 30, 1995;
- - increases in interest expense on the Partnership's floating rate debt as rates
rose from the first quarter 1994 to the end of the first quarter in 1995.
The Partnership purchased 636 trailers in the third and fourth quarters of 1994,
and 1,959 containers between the first and third quarters of 1994. The lessee of
the containers encountered financial difficulties in the fourth quarter of 1994,
resulting in the establishment of reserves against accrued revenues in the first
quarter 1995. Contributions realized from the trailers purchased in 1994
partially offset declining performance resulting from the events described
above.
(B) Financial Condition - Capital Resources, Liquidity, and Distribution
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 Partnership's Limited Partnership Agreement, while the
Partnership's total outstanding indebtedness, currently $28.0 million, can only
be increased up to a maximum of $35 million subject to specific covenants in the
existing debt agreement. The Partnership relies on operating cash flow to meet
its operating obligations, make cash distributions to partners, and increase the
Partnership's equipment portfolio with any remaining surplus cash available.
During the quarter ended March 31, 1995, the Partnership used $7.0 million in
proceeds from sales of equipment to prepay the first annual principal
installment of the loan due March 31, 1996, and to partially repay the second
annual installment due March 31, 1997.
For the quarter ended March 31, 1995, the Partnership generated sufficient
operating revenues to meet its operating obligations, but used undistributed
available cash from prior periods of approximately $0.6 million to maintain the
current level of distributions (total 1995 of $3.1 million) to the partners.
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(C) Depositary Unit Repurchase Plan
On December 28, 1992, the Partnership engaged in a program to repurchase up to
200,000 Depositary Units. In the three months ended March 31, 1995, the
Partnership had purchased and canceled 20,200 Depository Units at a cost of $0.2
million. As of March 31, 1995, the Partnership had cumulatively repurchased
47,100 Depositary Units at a cost of $0.5 million.
Comparison of the Partnership's Operating Results for the Three Months Ended
March 31, 1995 and 1994
(A) Revenues
Total revenues of $4.7 million for the quarter ended March 31, 1995, declined
from $6.9 for the same period in 1994. This decrease resulted primarily from
lower lease revenue, and a smaller net gain on disposition of equipment.
(1) Lease revenues decreased to $4.5 million in the quarter ended March 31,
1995, from $6.2 million in the same period in 1994. The following table presents
lease revenues earned by equipment type (in thousands):
For the three months ended
March 31,
------------------
1995 1994
--------- -------
Trailers and tractors $1,403 $ 922
Rail equipment 1,142 1,109
Aircraft 875 1,234
Marine containers 473 468
Mobile offshore drilling units 382 583
Marine vessels 256 1,853
------ ------
$4,531 $6,169
====== ======
Significant revenue component changes from quarter to quarter resulted primarily
from:
(a) declines of $1.6 million in marine vessel revenues due to the sale of
two marine vessels in the third quarter of 1994, which were on voyage charters
during the first quarter of 1994;
(b) declines of $0.4 million in aircraft revenue due to the off-lease
status of two aircraft in the beginning of 1995, and a lower re-lease rate on
another aircraft;
(c) a decrease of $0.2 million in mobile offshore drilling unit ("rig")
revenue due to the sale of one rig in the fourth quarter of 1994;
(d) an increase of $0.5 million in trailer and tractor revenue due to the
purchase of 649 trailers in the third and fourth quarters of 1994, offsetting
revenues earned by trailers sold at the end of March 1994.
(2) Net gain on disposition of equipment during the first quarter of 1995
totaled $50,000 from the disposal of 61 marine containers, with a net book value
of $75,000 for proceeds of $125,000. During the same period in 1994, the net
gain on disposition of
-9-
equipment was $0.6 million from the sale or disposal of 261 trailers, and 95
marine containers with a net book value of $1.1 million, for proceeds of $1.7
million.
(B) Expenses
Total expenses for the quarter ended March 31, 1995, decreased to $4.5 million
from $6.1 million for the same period in 1994. The decrease in 1995 expenses was
primarily attributable to decreases in repairs and maintenance, marine equipment
operating expense and depreciation expense.
(1) Direct operating expenses (defined as repairs and maintenance, insurance
expenses, and marine operating expenses) decreased to $0.6 million in the first
quarter of 1995, from $2.1 million in the same period in 1994. This decrease
resulted from:
(a) decreases of $0.8 million in repairs and maintenance costs from 1994
levels resulted from the sale of two marine vessels in the third quarter of
1994. These declines were offset slightly by increases in trailer expenses
resulting from the refurbishment of the 536 trailers purchased in the 4th
quarter of 1994, prior to transitioning to the short-term rental facilities;
(b) decreases of $0.8 million in marine equipment operating expense
resulted from the sale of two vessels marine in the third quarter of 1994;
(c) increases of $0.1 million in insurance expense which resulted from a
$0.2 million refund in 1994, from an insurance pool which the Partnership's
marine vessels participate, due to lower than expected insurance claims in the
pool. A similar refund was not received during the first quarter of 1995. This
increase was offset by a decrease of $0.1 million due to the sale of two marine
vessels in the third quarter of 1994.
(2) Indirect operating expenses (defined as depreciation and amortization
expense, management fees, interest expense, general and administrative expenses,
and bad debt expense) decreased slightly to $3.9 million in the first quarter of
1995 from $4.0 million in the same period in 1994. This decrease resulted from:
(a) decreases of $0.4 million in depreciation and amortization expense
from 1994 levels, reflecting the Partnership's double-declining depreciation
method and the effect of asset sales in 1994 and 1995, offset, in part, by the
purchase of equipment during the later part of 1994;
(b) decreases of $0.1 million in management fees to affiliates, reflecting
the lower levels of lease revenues in 1995 as compared to 1994;
(c) increases of $0.2 million in interest expense resulting from a higher
base rate of interest charged on the Partnership's floating rate debt;
(d) increases of $0.2 million in general and administrative expenses from
1994 levels resulting from the increased administrative costs associated with
the short-term rental facilities due to an additional 636 trailers now operating
in the facilities in the first quarter of 1995 when compared to the same period
in 1994.
(C) Net Income
The Partnership's net income of $0.2 million for the first quarter of 1995
decreased from
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a net income of $0.8 million in the same period of 1994. The Partnership's
ability to acquire, operate, or liquidate assets, secure leases, and re-lease
those assets whose leases expire during the duration of the Partnership is
subject to many factors and the Partnership's performance in the first quarter
1995 is not necessarily indicative of future periods. In the first quarter 1995,
the Partnership distributed $3.0 million to the Limited Partners, or $0.40 per
Depositary Unit.
Trends
Generally, Partnership performance continues to be sensitive to trends in those
industry segments in which the Partnership equipment is either subject to
frequent re-leasing activity, or is impacted by changing demand for particular
Partnership equipment. In the former case, the Partnership's trailers have been
subject to softening demand, particularly for refrigerated over-the-road units;
and its rigs and vessels have been subject to relatively low rates in
essentially static markets. In the latter case, the Partnership's 10-12 year old
containers (the majority of its container portfolio) are being retired at an
increased rate as container manufacturers step up deliveries of new containers;
while demand for the Partnership's older Stage II aircraft and engines has
declined in the U.S. market, leading the General Partner to re-market such
equipment abroad. Currently, demand for Partnership equipment remains strong in
the rail and over- the-road dry van areas.
The General Partner monitors these equipment markets. In those markets in which
the cyclical nature of demand has short-to intermediate-term impact, the General
Partner expects that partnership performance will be subject to such market
fluctuations and will vary accordingly. In those markets in which demand for
Partnership equipment has dropped for unacceptable lengths of time, the General
Partner takes appropriate action to reduce the Partnership's exposure to such
events.
The Partnership intends to use excess cash flow, if any, after payment of
expenses, loan principal and cash distributions to acquire additional equipment
through the end of its planned reinvestment period, which ends December 31,
1995.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
-12-
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: May 12, 1995 By: /s/ David J. Davis
------------------
David J. Davis
Vice President and
Corporate Controller
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