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, 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
-----------------------
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 November 13, 1995
Limited Partnership Depositary Units 7,430,505
General Partnership Units 1
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
BALANCE SHEETS
(in thousands of dollars)
ASSETS
September 30, December 31,
1995 1994
-----------------------------------------
Equipment held for operating leases $ 115,186 $ 128,784
Less accumulated depreciation (73,763) (74,672)
-----------------------------------------
Net equipment 41,423 54,112
Cash and cash equivalents 8,026 12,348
Restricted cash 296 296
Accounts receivable, less allowance for
doubtful accounts of $266 in 1995 and $427 in 1994 2,126 2,258
Deferred charges, net of accumulated amortization of
$1,484 in 1995 and $1,798 in 1994 292 385
Prepaid expenses and other assets 6 86
-----------------------------------------
Total assets $ 52,169 $ 69,485
=========================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 654 $ 867
Due to affiliates 567 236
Note payable 27,000 35,000
Prepaid deposits and reserve for repairs 2,650 3,229
-----------------------------------------
Total liabilities 30,871 39,332
Partners' capital (deficit):
Limited Partners (7,439,005 and 7,472,705 Depositary Units,
including 1,150 Depositary Units held in the
Treasury at September 30, 1995 and December 31, 1994) 21,706 30,850
General Partner (408) (697)
-----------------------------------------
Total partners' capital 21,298 30,153
-----------------------------------------
Total liabilities and partners' capital $ 52,169 $ 69,485
=========================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
STATEMENTS OF OPERATIONS
(In thousands of dollars except per unit amounts)
For the three months ended For the nine months ended
September 30, September 30,
1995 1994 1995 1994
---------------------------------------------------------------
Revenues:
Lease revenue $ 4,005 $ 5,983 $ 12,943 $ 18,263
Interest and other income 152 175 401 531
Net gain on disposition of equipment 496 125 1,351 765
---------------------------------------------------------------
Total revenues 4,653 6,283 14,695 19,559
Expenses:
Depreciation and amortization 2,149 2,710 6,479 8,231
Management fees to affiliate 203 299 637 911
Interest expense 584 569 1,851 1,942
Insurance expense to affiliate -- 135 87 239
Other insurance expense 33 158 128 505
Repairs and maintenance 663 770 2,065 3,350
Marine equipment operating expenses 31 1,074 176 2,929
General and administrative
expenses to affiliates 206 185 669 522
Other general and administrative expenses 281 194 917 741
Provision for (recovery of) bad debt (60) 5 192 55
Loss on revaluation of equipment 667 -- 667 --
---------------------------------------------------------------
---------------------------------------------------------------
Total expenses 4,757 6,099 13,868 19,425
---------------------------------------------------------------
Net income (loss) $ (104) $ 184 $ 827 $ 134
===============================================================
Partners' share of net income (loss):
Limited Partners $ (612) $ (234) $ 67 $ (646)
General Partner 508 418 760 780
---------------------------------------------------------------
Total $ (104) $ 184 $ 827 $ 134
===============================================================
Net income (loss) per Depositary Unit
(7,439,005 and 7,492,705 Units,
including 1,150 Units held in Treasury
respectively,
at September 30, 1995 and 1994) $ (0.08) $ (0.03) $ 0.01 $ (0.09)
===============================================================
Cash distributions $ 3,132 $ 3,155 $ 9,416 $ 9,465
===============================================================
Cash distributions per Depositary Unit $ 0.40 $ 0.40 $ 1.20 $ 1.20
===============================================================
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, 1993 to September 30, 1995
(in 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 67 760 827
Cash distributions (8,945) (471) (9,416)
Repurchase of Depositary Units (266) -- (266)
-----------------------------------------------------
Partners' capital (deficit) at September 30, 1995 $ 21,706 $ (408) $ 21,298
=====================================================
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,
1995 1994
-----------------------------------
Operating activities:
Net income $ 827 $ 134
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Net gain on disposition of equipment (1,351) (765)
Loss on revaluation of equipment 667 --
Write-off of unamortized loan origination costs -- 305
Depreciation and amortization 6,479 8,231
Changes in operating assets and liabilities:
Restricted cash 1 (91)
Accounts receivable, net 131 278
Due to affiliate 446 (146)
Prepaid expenses and other assets 80 210
Accounts payable and accrued expenses (229) (636)
Accrued drydock expenses 271 --
Prepaid deposits and reserve for repairs (694) 1,561
-----------------------------------
Cash provided by operating activities 6,628 9,081
-----------------------------------
Investing activities:
Proceeds from disposition of equipment 6,743 9,782
Payments for purchase of equipment -- (3,949)
Payments of acquisition-related fees to affiliate -- (93)
Payments for lease negotiation fees -- (21)
Payments for capital improvements (11) (725)
Decrease in restricted cash -- 7,887
-----------------------------------
-----------------------------------
Cash provided by investing activities 6,732 12,881
-----------------------------------
Financing activities:
Proceeds from note payable -- 35,000
Principal payments on notes payable (8,000) (35,000)
Cash distributions paid to partners (9,416) (9,465)
Payments of debt issuance costs -- (236)
Repurchase of Depositary Units (266) --
-----------------------------------
Cash used in financing activities (17,682) (9,701)
-----------------------------------
Cash and cash equivalents:
Net (decrease) increase in cash and cash equivalents (4,322) 12,261
Cash and cash equivalents at beginning of period 12,348 5,996
-----------------------------------
Cash and cash equivalents at end of period $ 8,026 $ 18,257
===================================
Supplemental information:
Interest paid $ 1,795 $ 1,638
===================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 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
September 30, 1995, the statements of operations for the three and nine months
ended September 30, 1995 and 1994, the statements of changes in partners'
capital for the period December 31, 1993 to September 30, 1995 and the
statements of cash flows for the nine months ended September 30, 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. Cash Distribution
Cash distributions are recorded when paid and totaled $9,416,000 and $3,132,000
for the nine and three months ended September 30, 1995, respectively. Cash
distributions to unitholders in excess of net income are considered to represent
a return of capital. Cash distributions to unitholders of $8,878,000 and
$8,992,000 for the nine months ended September 30, 1995, and 1994, respectively,
were deemed to be a return of capital.
Cash distributions of $2,976,000 ($0.40 per Depositary Unit) were declared on
September 11, 1995, and are to be paid on November 15, 1995, to the unitholders
of record as of September 30, 1995.
3. Repurchase of Depositary Units
On December 28, 1992, the Partnership engaged in a program to repurchase up to
200,000 Depositary Units. In the nine months ended September 30, 1995, the
Partnership had purchased and canceled 33,700 Depositary Units at a cost of $0.3
million. As of September 30, 1995, the Partnership had cumulatively repurchased
60,600 Depositary Units at a cost of $0.6 million.
4. Future Delisting of Partnership Units
The Partnership depositary units are listed and traded on the American Stock
Exchange under the symbol GFY. Under the Internal Revenue Code ("the Code"), the
Partnership is classified as a Master Limited Partnership. The Code requires all
Master Limited Partnerships traded on a national exchange be taxed as a
corporation after December 31, 1997. Treating the Partnership as a corporation
will mean the Partnership itself will become a taxable, rather than a "flow
through" entity. As a taxable entity, the income of the Partnership will be
subject to federal taxation at both the partnership level and at the investor
level to the extent income is allocated to an investor. In order to avoid
"double" taxation, it is the intent of the General Partner to delist the
Partnership's depositary units from the American Stock Exchange prior to January
1, 1998. In this event, the Partnership's depositary units will no longer be
publicly traded on a national stock exchange.
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
5. Equipment
Equipment held for operating leases is stated at cost. The components of
equipment are as follows (in thousands):
September 30, December 31,
1995 1994
--------------------------------
Equipment held for operating leases:
Rail equipment $ 19,747 $ 19,749
Marine containers 13,881 17,939
Marine vessels -- 4,702
Aircraft 45,947 50,644
Trailers and tractors 22,953 23,092
Mobile offshore drilling unit 12,658 12,658
--------------------------------
115,186 128,784
Less accumulated depreciation (73,763) (74,672)
--------------------------------
================================
Net equipment $ 41,423 $ 54,112
================================
Revenues are earned by placing the equipment under operating leases which are
generally billed monthly or quarterly. Certain of the Partnership's 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 traveled or a fixed rate; rents for all other equipment are based on
fixed rates.
As of September 30, 1995, all equipment in the Partnership's portfolio was
either on lease or operating in PLM-affiliated short-term trailer rental
facilities, with the exception of 201 marine containers and three railcars. At
December 31, 1994, all equipment in the Partnership portfolio was either on
lease or operating in PLM-affiliate short-term trailer rental facilities, with
the exception of 266 marine containers and one tractor. The aggregate carrying
value of equipment off lease was $785,000 and $1,136,000 at September 30, 1995
and December 31, 1994, respectively.
The Partnership reduced the carrying value of an aircraft by $667,000 during
1995 to it's estimated net realizable value.
During the nine months ended September 30, 1995, the Partnership sold or
disposed of its 50% interest in a DC-9 aircraft, 2,209 marine containers, nine
trailers, one tractor, one railcar, and its 50% interest in a marine vessel,
with an aggregate net book value of $5.6 million, and unused drydock reserves of
$0.3 million, for proceeds of $6.7 million. For the nine months ended September
30, 1994, the Partnership sold or disposed of 266 trailers, 328 marine
containers, two railcars, and two marine vessels with an aggregate net book
value of $11.1 million, and unused drydock reserves and closing costs of $2.0
million, for proceeds of $9.8 million.
6. Notes Payable
As of September 30, 1995, the Partnership prepaid $8,000,000 of the outstanding
note payable of $35 million. This payment was applied to the principal payments
due March 31, 1996 and 1997.
The General Partner has entered into a joint $25 million credit facility (the
"Committed Bridge Facility") on behalf of the Partnership, PLM Equipment Growth
Fund III, PLM Equipment Growth Fund IV, PLM Equipment Growth Fund V, PLM
Equipment Growth Fund VI, PLM Equipment Growth & Income Fund VII and
Professional Lease Management Income Fund I ("Fund I"), all affiliated
investment programs,
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
6. Notes Payable (continued)
and TEC Acquisub, Inc. ("TECAI"), an indirect wholly-owned subsidiary of the
General Partner, which may be used to provide interim financing of up to (i) 70%
of the aggregate book value or 50% of the aggregate net fair market value of
eligible equipment owned by the Partnership, Fund I(II) 50% of unrestricted cash
held by the borrower. The Committed Bridge Facility became available to EGF VII
and TECAI on December 20, 1993, and was amended and restated to include the
above mentioned Partnership on September 27, 1995 and to expire on September 30,
1996. The Committed Bridge Facility also provides for a $5 million Letter of
Credit Facility for the eligible borrowers. Outstanding borrowings by Fund I,
TECAI or PLM Equipment Growth Funds II through VII reduce the amount available
to each other under the Committed Bridge Facility. Individual borrowings may be
outstanding for no more than 179 days, with all advances due no later than
September 30, 1996. The Committed Bridge Facility prohibits the Partnership from
incurring any additional indebtedness. Interest accrues at either the prime rate
or adjusted LIBOR plus 2.5% at the borrowers option and is set at the time of an
advance of funds. As of September 30, 1995, Fund I had $1,057,000 in outstanding
borrowings under the Committed Bridge Facility, PLM Equipment Growth Fund VI had
$1,684,000, PLM Equipment Growth & Income Fund VII had $9,569,000 and neither
the Partnership nor TECAI had any outstanding borrowings. Due to the loan
covenants of the senior debt, the Partnership cannot access this line of credit
at this time.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
(A) Results of Operations -For the nine months ending September 30, 1995 and
1994 Summary
The Partnership's operating income before depreciation, amortization, gain/loss
and loss on revaluation on sales declined by approximately 13% in the first nine
months of 1995 from the same period in 1994. This decline is attributable
primarily to:
- - sales or liquidations of equipment subsequent to the third quarter of 1994, as
the Partnership sold its 12.5% interest in a rig in December of 1994, sold two
marine vessels in September of 1994, sold its 50% interest in another marine
vessel in May of 1995, sold its 50% interest in a DC-9 aircraft in April of
1995, sold 9 trailers and a tractor, and the realization of the liquidation or
disposal of approximately 2,444 marine containers in the 12 month period ended
September 30, 1995;
- - a 60% reduction in lease rate for one of the Partnership's aircraft as its
lease was renegotiated at a lower rate in the second quarter of 1994, a
reduction in contribution from aircraft in the first quarter of 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 a rig in which the
Partnership owns a 55% interest effective January 30, 1995;
The overall decline in the Partnership's operating income for the nine
month period ending September 30, 1995 as compared to the same period in 1994,
occurred despite additions of trailers and containers purchased either in or
subsequent to the nine months ended September 30, 1994. 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. Recovery of container
revenues previously classified as uncollectible, together with contributions
from the above-mentioned trailers.
(B) Financial Condition - Capital Resources, Liquidity, and Distributions
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. The Partnership's
total outstanding indebtedness, currently $27.0 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 nine months ended September 30, 1995, the Partnership used $8.0
million in proceeds from the sale of equipment and other cash on hand to prepay
the first annual $4 million principal installment of the loan due March 31,
1996, and to prepay the second annual $4 million installment due March 31, 1997.
The General Partner has entered into a joint $25 million credit facility
(the "Committed Bridge Facility") on behalf of the Partnership, PLM Equipment
Growth Fund III, PLM Equipment Growth Fund IV, PLM Equipment Growth Fund V, PLM
Equipment Growth Fund VI, PLM Equipment Growth & Income Fund VII and
Professional Lease Management Income Fund I ("Fund I"), all affiliated
investment programs, and TEC Acquisub, Inc. ("TECAI"), an indirect wholly-owned
subsidiary of the General Partner, which may be used to provide interim
financing of up to (i) 70% of the aggregate book value or 50% of the aggregate
net fair market value of eligible equipment owned by the Partnership, Fund I,
plus (ii) 50% of unrestricted cash held by the borrower. The Committed Bridge
Facility became available to EGF VII and TECAI on December 20, 1993, and was
amended and restated to include the above mentioned Partnership on September 27,
1995 and to expire on September 30, 1996. The Committed Bridge Facility also
provides for a $5 million Letter of Credit Facility for the eligible borrowers.
Outstanding borrowings by Fund I, TECAI or PLM Equipment Growth Funds II through
VII reduce the amount available to each other under the Committed Bridge
Facility. Individual borrowings may be outstanding for no more than 179 days,
with all advances due no later than September 30, 1996. The Committed Bridge
Facility prohibits the Partnership from incurring any additional indebtedness.
Interest accrues at either the prime rate or adjusted LIBOR plus 2.5% at the
borrowers option and is set at the time of an advance of funds. As of September
30, 1995, Fund I had $1,057,000 in outstanding borrowings under the Committed
Bridge Facility, PLM Equipment Growth Fund VI had $1,684,000, PLM Equipment
Growth & Income Fund VII had $9,569,000 and neither the Partnership nor TECAI
had any outstanding borrowings. Due to the loan covenants of the senior debt,
the Partnership cannot access this line of credit at this time.
For the nine months ended September 30, 1995, the Partnership generated
sufficient operating revenues to meet its operating obligations, but used
undistributed available cash from prior periods of approximately $2.7 million to
maintain the current level of distributions (total 1995 of $9.4 million) to the
partners.
(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 nine months ended September 30, 1995, the
Partnership had purchased and canceled 33,700 Depositary Units at a cost of $0.3
million. As of September 30, 1995, the Partnership had cumulatively repurchased
60,600 Depositary Units at a cost of $0.6 million.
(D) Future Delisting of Partnership Units
The Partnership depositary units are listed and traded on the American Stock
Exchange under the symbol GFY. Under the Internal Revenue Code ("the Code"), the
Partnership is classified as a Master Limited Partnership. The Code requires all
Master Limited Partnerships traded on a national exchange be taxed as a
corporation after December 31, 1997. Treating the Partnership as a corporation
will mean the Partnership itself will become a taxable, rather than a "flow
through" entity. As a taxable entity, the income of the Partnership will be
subject to federal taxation at both the partnership level and at the investor
level to the extent income is allocated to an investor. In order to avoid
"double" taxation, it is the intent of the General Partner to delist the
Partnership's depositary units from the American Stock Exchange prior to January
1, 1998. In this event, the Partnership's depositary units will no longer be
publicly traded on a national stock exchange.
Comparison of the Partnership's Operating Results for the Three Months Ended
September 30, 1995 and 1994
(A) Revenues
Total revenues of $4.7 million for the quarter ended September 30, 1995,
declined from $6.3 million for the same period in 1994. This decrease resulted
primarily from lower lease revenue offset by a larger gain on equipment disposed
in the third quarter of 1995 when compared to the same period in 1994.
(1) Lease revenues decreased to $4.0 million in the quarter ended September 30,
1995, from $6.0 million in the same period in 1994. The following table lists
lease revenues earned by equipment type (in thousands):
For the three months
ended September 30,
1995 1994
--------------------------
Trailers and tractors $ 1,122 $ 899
Rail equipment 1,209 1,202
Aircraft 988 1,171
Marine containers 378 415
Mobile offshore drilling units 358 643
Marine vessels (50) 1,653
--------------------------
$ 4,005 $ 5,983
==========================
Significant revenue component changes from quarter to quarter resulted primarily
from:
(a) declines of $1.7 million in marine vessel revenues due to the sale of
two marine vessels during the third quarter of 1994, and a 50% interest in
another marine vessel in the second quarter of 1995, which were on voyage
charters or utilization-based pooling arrangements during the first nine months
of 1994;
(b) declines of $0.2 million in aircraft revenue due to the sale of the
Partnership's 50% interest in a DC-9 aircraft during the second quarter of 1995;
(c) a decrease of $0.3 million in mobile offshore drilling unit ("rig")
revenue due to the sale of one rig in the fourth quarter of 1994, and a lower
re-lease rate on another rig;
(d) an increase of $0.2 million in trailer and tractor revenue due to the
purchase of 649 trailers in the third and fourth quarters of 1994.
(2) Net gain on disposition of equipment during the third quarter of 1995
totaled $0.5 million from the sale or disposal of one trailer and 2,069 marine
containers with an aggregate net book value of $2.1 million for proceeds of $2.6
million. During the same period in 1994, the net gain on disposition of
equipment was $0.1 million from the sale or disposal of four trailers, 144
marine containers, two railcars, and two marine vessels with an aggregate net
book value of $9.9 million, and unused drydock reserves and closing costs of
$2.0 million, for proceeds of $8.0 million.
(B) Expenses
Total expenses for the quarter ended September 30, 1995, decreased to $4.8
million from $6.1 million for the same period in 1994. The decrease in 1995
expenses was primarily attributable to decreases in marine equipment operating
expense, depreciation expense, repairs and maintenance, and insurance expense,
offset by an increase in all general and administrative expenses.
(1) Direct operating expenses (defined as repairs and maintenance, insurance
expenses, and marine operating expenses) decreased to $0.7 million in the third
quarter of 1995, from $2.1 million in the same period in 1994.
This decrease resulted from:
(a) decreases of $1.0 million in marine equipment operating expense due to
the sale of two marine vessels in the third quarter of 1994 and the
Partnership's 50% interest in another marine vessel in the third quarter of
1995;
(b) decreases of $0.1 million in repairs and maintenance costs from 1994
levels resulted from the sale of two marine vessels in the third quarter of 1994
and a 50% interest in another marine vessel in the second quarter of 1995;
(c) decreases of $0.3 million in insurance expenses resulted from the sale
of two marine vessels in the third quarter of 1994 and the partnership's 50%
interest in another marine vessel in the second quarter of 1995.
(2) Indirect operating expenses (defined as depreciation expense, management
fees, interest expense, general and administrative expenses, and bad debt
expense) decreased to $3.4 million in the third quarter of 1995 from $4.0
million in the same period in 1994. This decrease resulted from:
(a) decreases of $0.6 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 $0.1 million in all 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 third quarter of 1995 when compared to the
same period in 1994.
(3) Loss on revaluation of equipment in the third quarter of 1995 results from
the Partnership reducing the carrying value of an aircraft to its estimated net
realizable value.
(C) Net Income (Loss)
The Partnership's net loss of $0.1 million for the third quarter of 1995
decreased from a net income of $0.2 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
third quarter 1995 is not necessarily indicative of future periods. In the third
quarter 1995, the Partnership distributed $3.0 million to the Limited Partners,
or $0.40 per Depositary Unit.
Comparison of the Partnership's Operating Results for the Nine Months Ended
September 30, 1995 and 1994
(A) Revenues
Total revenues of $14.7 million for the nine months ended September 30, 1995,
declined from $19.6 million for the same period in 1994. This decrease resulted
primarily from lower lease revenue.
(1) Lease revenues decreased to $12.9 million in the nine months ended September
30, 1995 from $18.3 million in the same quarter of 1994. The following table
lists lease revenues earned by equipment type:
For the nine months ended
September 30,
1995 1994
----------------------------
Trailers and tractors $ 3,810 $ 2,590
Rail equipment 3,604 3,619
Aircraft 2,804 3,771
Marine containers 1,292 1,289
Mobile offshore drilling units 1,078 1,852
Marine vessels 355 5,142
----------------------------
$ 12,943 $ 18,263
============================
Significant revenue component changes from period to period resulted primarily
from:
(a) declines of $4.8 million in marine vessel revenues due to the sale of
two marine vessels in the third quarter of 1994, and the Partnership's 50%
interest in another marine vessel in the second quarter of 1995, which were on
voyage charters or utilization-based pooling arrangements during the first nine
months of 1994;
(b) declines of $1.0 million in aircraft revenue due to the sale of the
Partnership's 50% interest in a DC-9 aircraft during the second quarter of 1995,
and a lower re-lease rate on another aircraft;
(c) a decrease of $0.8 million in mobile offshore drilling unit ("rig")
revenue due to the sale of one rig in the fourth quarter of 1994 and a lower
re-lease rate on another rig;
(d) an increase of $1.2 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) Interest and other income decreased by $0.1 million due primarily to lower
cash balances available for investment, offset slightly by an increase in the
interest rate earned on cash equivalents.
(3) Net gain on disposition of equipment during the nine months ended September
30, 1995, totaled $1.4 million from the sale or disposal of the Partnership's
50% interest in a DC-9 aircraft, nine trailers, one tractor, 2,209 marine
containers, one railcar, and the Partnership's 50% interest in a marine vessel
with an aggregate net book value of $5.6 million, and unused drydock reserves of
$0.3 million, for proceeds of $6.7 million. Net gain or disposition of equipment
for the same period in 1994 totaled $0.8 million from the sale or disposal of
266 trailers, 328 marine containers, two railcars, and two marine vessels with
an aggregate net book value of $11.1 million, and unused drydock reserves and
closing costs of $2.0 million, for proceeds of $9.8 million (See Footnote 5 to
the Financial Statements).
(B) Expenses
Total expenses for the nine months ended September 30, 1995, decreased to $13.9
million from $19.4 million for the same period in 1994. The decrease in 1995
expenses was primarily attributable to decreases in depreciation expense, marine
vessel operating expenses, and repairs and maintenance.
(1) Direct operating expenses (defined as repairs and maintenance, insurance
expenses, and marine operating expenses) decreased to $2.5 million for the nine
months ended September 30, 1995, from $7.0 million in the same period of 1994.
This decrease resulted from:
(a) decreases of $2.7 million in marine equipment operating expense
resulted from the sale of two marine vessels in the third quarter of 1994, and
the Partnership's 50% interest in another marine vessel in the second quarter of
1995;
(b) decreases of $1.3 million in repairs and maintenance costs from 1994
levels resulted from the sale of two marine vessels in the third quarter of
1994, and a 50% interest in another marine vessel in the second quarter of 1995.
These declines were offset slightly by increases in aircraft expenses resulting
from the refurbishment of an aircraft prior to being re-leased;
(c) decreases of $0.5 million in all insurance expenses resulted from the
sale of two marine vessels in the second quarter of 1994. The 1994 expenses
include a $0.2 million refund, from an insurance pool in which the Partnership's
marine vessels participate, due to lower than expected insurance claims in the
pool. A similar refund was not received in 1995.
(2) Indirect operating expenses (defined as depreciation expense, management
fees, interest expense, general and administrative expenses, and bad debt
expense) decreased to $10.7 million for the nine months ended September 30,
1995, from $12.4 million in the same period of 1994. This decrease resulted
primarily from:
(a) decreases of $1.8 million in depreciation expense from 1994 levels,
reflecting the Partnership's double-declining balance depreciation method and
the effect of asset sales in 1994 and 1995, partially offset by the purchase of
equipment during the later part of 1994;
(b) decreases of $0.3 million in management fees to affiliates, reflecting
the lower levels of lease revenues in 1995 as compared to 1994;
(c) decreases of $0.1 million in interest expense from a $0.3 million
write-off in 1994 of unamortized loan origination costs due to the refinancing
of the Partnership's debt in 1994, offset by a $0.2 million increase due to a
higher base rate of interest charged on the Partnership's floating rate debt
during 1995;
(d) increases of $0.3 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 nine months of 1995 when compared to the same
period in 1994;
(e) increases of $0.1 million in bad debt expense reflect to the General
Partner's evaluation of the collectibility of receivables due from an aircraft
lessee that encountered financial difficulties.
(3) Loss on revaluation of equipment in the third quarter of 1995 results from
the Partnership reducing the carrying value of an aircraft to its estimated net
realizable value.
(C) Net Income
The Partnership's net income of $0.8 million for the nine months ended September
30, 1995, increased from $0.1 million for the same period in 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 for the
nine months ended September 30, 1995 is not necessarily indicative of future
periods. In the nine months ended September 30, 1995, the Partnership
distributed $8.9 million to the Limited Partners, or $1.20 per Depositary Unit.
Trends
Generally, Partnership performance continues to be sensitive to trends in those
industry segments in which the equipment is either subject to frequent
re-leasing activity, or is impacted by changing demand for particular 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, the General Partner is re-marketing such equipment abroad. Currently,
demand for Partnership equipment remains strong in the rail and over-the-road
dry van areas.
The General Partner monitors all 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 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.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10. $25,000,000 Warehousing Credit Agreement, dated as of
September 27, 1995 with First Union National Bank of North
Carolina.
(b) Reports on Form 8-K
None.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
PLM EQUIPMENT GROWTH FUND II
By: PLM Financial Services, Inc.
General Partner
Date: November 13, 1995 By: /s/ David J. Davis
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David J. Davis
Vice President and
Corporate Controller