-11-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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
March 31, 1997.
[ ] 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 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)
ASSETS
March 31, December 31,
1997 1996
------------------------------------------
Equipment held for operating leases, at cost $ 80,502 $ 82,856
Less accumulated depreciation (61,340 ) (62,114 )
------------------------------------------
Net equipment 19,162 20,742
Cash and cash equivalents 5,614 7,962
Restricted cash 295 295
Investment in unconsolidated special purpose entities 1,611 1,665
Accounts receivable, less allowance for doubtful
accounts of $1,191 in 1997 and $882 in 1996 1,961 1,765
Deferred charges, net of accumulated amortization of
$212 in 1997 and $197 in 1996 138 157
Prepaid expenses and other assets 993 1,009
------------------------------------------
Total assets $ 29,774 $ 33,595
==========================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 459 $ 412
Due to affiliates 112 110
Notes payable 10,500 13,000
Lessee deposits and reserve for repairs 3,010 2,827
------------------------------------------
Total liabilities 14,081 16,349
Partners' capital (deficit):
Limited partners (7,381,805 depositary units, including 1,150
depositary units held in the Treasury at March 31, 1997
and December 31, 1996) 15,844 17,434
General Partner (151 ) (188 )
------------------------------------------
Total partners' capital 15,693 17,246
------------------------------------------
Total liabilities and partners' capital $ 29,774 $ 33,595
==========================================
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 March 31,
1997 1996
----------------------------
Revenues:
Lease revenue $ 3,038 $ 3,181
Interest and other income 81 73
Net gain on disposition of equipment 168 114
-----------------------------
Total revenues 3,287 3,368
Expenses:
Depreciation and amortization 1,223 1,467
Management fees to affiliate 128 149
Interest expense 233 488
Other insurance expense 30 40
Repairs and maintenance 376 389
Marine equipment operating expenses -- 6
General and administrative expenses
to affiliates 214 194
Other general and administrative expenses 252 286
Provision for bad debt 326 31
-----------------------------
Total expenses 2,782 3,050
Equity in net loss of unconsolidated special
purpose entities (116 ) (402 )
-----------------------------
Net income (loss) $ 389 $ (84 )
=============================
Partners' share of net income (loss):
Limited Partners $ 255 $ (269 )
General Partner 134 185
-----------------------------
Total $ 389 $ (84 )
=============================
Net income (loss) per weighted average depositary unit (7,381,805 and
7,393,536 units respectively, at March 31, 1997 and
1996) $ 0.03 $ (0.04 )
=============================
Cash distributions $ 1,942 $ 3,127
=============================
Cash distributions per weighted average
depositary unit $ 0.25 $ 0.40
=============================
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, 1995 to March 31, 1997
(in thousands of dollars)
Limited General
Partners Partner Total
---------------------------------------------------
Partners' capital (deficit) at December 31, 1995 $ 18,658 $ (462 ) $ 18,196
Net income 7,464 722 8,186
Cash distributions (8,509 ) (448 ) (8,957 )
Repurchase of depositary units (179 ) -- (179 )
---------------------------------------------------
Partners' capital (deficit) at December 31, 1996 17,434 (188 ) 17,246
Net income 255 134 389
Cash distributions (1,845 ) (97 ) (1,942 )
---------------------------------------------------
Partners' capital (deficit) at March 31, 1997 $ 15,844 $ (151 ) $ 15,693
===================================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
For the three months
ended March 31,
1997 1996
-----------------------------------
Operating activities:
Net income (loss) $ 389 $ (84 )
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Net gain on disposition of equipment (168 ) (114 )
Depreciation and amortization 1,223 1,467
Equity in net loss of unconsolidated special purpose
entities 116 402
Changes in operating assets and liabilities:
Restricted cash -- 1
Accounts receivable, net (196 ) 404
Prepaid expenses and other assets 16 20
Accounts payable and accrued expenses 47 (67 )
Due to affiliates 2 (182 )
Lessee deposits and reserve for repairs 183 (663 )
-----------------------------------
Net cash provided by operating activities 1,612 1,184
-----------------------------------
Investing activities:
Proceeds from disposition of equipment 544 254
Distributions to unconsolidated special purpose entities (62 ) (20 )
Payments for capital improvements -- (5 )
-----------------------------------
Net cash provided by investing activities 482 229
-----------------------------------
Financing activities:
Principal payments on notes payable (2,500 ) --
Cash distributions paid to Limited partners (1,845 ) (2,971 )
Cash distributions paid to General Partner (97 ) (156 )
Repurchase of depositary units -- (179 )
-----------------------------------
Cash used in financing activities (4,442 ) (3,306 )
-----------------------------------
Cash and cash equivalents:
Net decrease in cash and cash equivalents (2,348 ) (1,893 )
Cash and cash equivalents at beginning of period 7,962 6,427
-----------------------------------
Cash and cash equivalents at end of period $ 5,614 $ 4,534
===================================
Supplemental information:
Interest paid $ 232 $ 488
===================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
1. Opinion of Management
In the opinion of the management of PLM Financial Services, Inc. (FSI), 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, 1997 and December 31, 1996, the
statements of operations and cash flows for the three months ended March
31, 1997 and 1996, and the statements of changes in partners' capital, for
the period from December 31, 1995 to March 31, 1997. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted from the accompanying financial statements. For
further information, reference should be made to the financial statements
and notes thereto included in the Partnership's Annual Report on Form 10-K
for the year ended December 31, 1996, on file at the Securities and
Exchange Commission.
2. Reclassification
Certain amounts in the 1996 financial statements have been reclassified to
conform to the 1997 presentation.
3 Cash Distribution
Cash distributions are recorded when paid and totaled $1.9 million and $3.1
million for the three months ended March 31, 1997 and 1996, respectively.
Cash distributions to limited partners in excess of net income are
considered to represent a return of capital. Cash distributions to limited
partners of $1.6 million and $3.0 million for the three months ended March
31, 1997, and 1996, respectively, were deemed to be a return of capital.
Cash distributions of $1.9 million ($0.25 per depositary unit) were
declared on April 25, 1997, and are to be paid on May 15, 1997, to the
unitholders of record as of March 31, 1997.
4. Investment in Unconsolidated Special Purpose Entity
The net investment in unconsolidated special purpose entity (USPE) includes
the following jointly-owned equipment (and related assets and liabilities)
(in thousands):
March 31, December 31,
1997 1996
----------------------------------------
50% interest in a trust owning a Boeing 737-
200A aircraft $ 1,611 $ 1,665
---------------------------------------
Investment in unconsolidated special purpose
entity $ 1,611 $ 1,665
=======================================
This investment was off-lease at March 31, 1997 and December 31, 1996.
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
5. General Partner and Transactions with Affiliates
Partnership management fees of $0.1 million and $0.1 million, were payable
at March 31, 1997, and December 31, 1996, respectively. The Partnership's
proportional share of the USPE's management fees expenses for the quarter
ended March 31, 1997 and 1996, respectively were $0 and $25,000. The
Partnership reimbursed FSI and its affiliates $0.2 million and $0.2 million
for administrative and data processing services performed on behalf of the
Partnership for the quarter ended March 31, 1997 and 1996, respectively.
The Partnership's proportional share of the USPE's administrative and data
processing expenses was $0 and $23,000 for the quarter ended March 31, 1997
and 1996.
6. Other Assets
Included in other assets is a spare engine which was purchased in 1996.
This engine will replace an existing engine in need of overhaul on one of
the Partnership's Boeing 737-200 commercial aircraft in 1997.
The old engine will be sold when removed from service.
7. Equipment
Owned equipment held for operating leases is stated at cost. The components
of owned equipment are as follows (in thousands):
March 31, December 31,
1997 1996
--------------------------------------
Rail equipment $ 18,170 $ 18,183
Marine containers 10,499 10,640
Aircraft 32,860 32,860
Trailers and tractors 18,973 21,173
------------------------------------
80,502 82,856
Less accumulated depreciation (61,340 ) (62,114 )
------------------------------------
====================================
Net equipment $ 19,162 $ 20,742
====================================
As of March 31, 1997, all equipment in the Partnership's portfolio was
either on lease or operating in PLM-affiliated short-term trailer rental
facilities, except for 75 marine containers and 3 railcars. With the
exception of 71 marine containers and 3 railcars, all equipment in the
Partnership portfolio was either on lease or operating in PLM-affiliate
short-term trailer rental facilities at December 31, 1996. The aggregate
carrying value of equipment off-lease was $0.2 million and $0.2 million at
March 31, 1997 and December 31, 1996, respectively.
During the three months ended March 31, 1997, the Partnership sold or
disposed of marine containers, trailers and a railcar with an aggregate net
book value of $0.4 million, for proceeds of $0.6 million. For the three
months ended March 31, 1996, the Partnership sold or disposed of marine
containers, trailers and a railcar, with an aggregate net book value of
$0.1 million, for proceeds of $0.2 million.
8. Notes Payable
In the first quarter of 1997, the Partnership prepaid $2.5 million of the
outstanding note payable representing a portion of the principal payment
due March 31, 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Comparison of the Partnership's Operating Results for the Three Months Ended
March 31, 1997 and 1996
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance, marine
equipment operating, and asset specific insurance expenses) on owned equipment
decreased during the first quarter of 1997 when compared to the same quarter of
1996. The following table presents lease revenues less direct expenses by owned
equipment type (in thousands):
For the Three Months
Ended March 31,
1997 1996
----------------------------
Aircraft $ 620 $ 590
Trailers 795 885
Rail equipment 925 942
Marine containers 301 354
Aircraft: Aircraft lease revenues and direct expenses were $0.6 million and
$10,000, respectively, for the first quarter of 1997, compared to $0.6 million
and $20,000, respectively, during the same period of 1996. Aircraft contribution
increased slightly due to the increase in lease rate for an aircraft offset by a
decrease in the lease rate for another aircraft in the first quarter of 1997
compared to the same period In 1996.
Trailers: Trailer lease revenues and direct expenses were $0.9 million and $0.1
million, respectively, for the first quarter of 1997, compared to $1.0 million
and $0.1 million, respectively, during the same quarter of 1996. The decrease in
trailer contribution was primarily due to the sale of 86 trailers in the first
quarter of 1997.
Rail equipment: Railcar lease revenues and direct expenses were $1.2 million and
$0.3 million, respectively, for the first quarter of 1997 and 1996. Rail
equipment contributions remained the same due to the relative stability of the
railcar fleet.
Marine containers: Marine container lease revenues were $0.3 million and $0.4
million during the first quarter of 1997 and 1996, respectively. The number of
marine containers owned by the Partnership has been declining over the past
twelve months due to sales and dispositions. The result of this declining fleet
has been a decrease in marine container revenue.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $2.4 million for the first quarter of 1997 decreased
from $2.6 million for the same period in 1996. The variances are explained as
follows:
(a) A $0.2 million decrease in depreciation and amortization expense from
1996 levels, reflecting the effect of asset sales in 1996 and 1997.
(b) A $0.3 million decrease in interest expense is due to the decrease in
the level of outstanding debt during the first quarter of 1997 when compared to
the same period in 1996. In 1997, the Partnership prepaid $2.5 million of the
outstanding note payable representing a portion of principal payment due March
31, 1999. In 1996, the Partnership prepaid $14 million of the outstanding note
payable representing the principal payments due March 31, 1998 and a portion of
the principal payment due March 31, 1999.
(c) A $0.3 million increase in bad debt expense to reflect the General
Partner's evaluation of the collectibility of receivables due from an aircraft
lessee that encountered financial difficulties.
(C) Net Gain on Disposition of Owned Equipment
Net gain on disposition of equipment for the first quarter of 1997 totaled $0.2
million which resulted from the disposal or sale of trailers, marine containers
and a railcar with an aggregate net book value of $0.4 million, for aggregate
proceeds of $0.6 million. For the same period in 1996, the $0.1 million net gain
on disposition of equipment resulted from the sale or disposal of the trailers,
marine containers and a railcar with an aggregate net book value of $0.1
million, for proceeds of $0.2 million.
(D) Equity in Net Loss of Unconsolidated Special Purpose Entities
Net loss generated from the operation of jointly-owned assets accounted for
under the equity method is as follows (in thousands).
For the Three Months
Ended March 31,
1997 1996
----------------------------
Aircraft $ (116 ) $ (361 )
Mobile offshore drilling unit -- (41 )
Aircraft: As of March 31, 1997 and 1996, the Partnership owned a 50% investment
in an entity which owns a commercial aircraft. Revenues and expenses were $0.0
and $0.1 million, respectively, for the first quarter of 1997, compared to $0.2
million and $0.5 million, respectively, for the same period in 1996. The
Partnership's share of revenue decreased due to the off-lease status of this
aircraft during the first quarter of 1997; this aircraft had been on-lease for
the entire first quarter of 1996. The Partnership's share of expenses decreased
due to the repairs that were needed in 1996 to meet airworthiness conditions. In
addition, during 1996 the General Partner fully reserved the uncollected
outstanding receivables from the former troubled lessee related to the
Partnership's 50% investment in an entity which owns an aircraft.
Mobile offshore drilling unit: As of March 31, 1996, the Partnership owned a 55%
investment in an entity which owns a mobile offshore drilling unit (rig). The
rig was sold in the third quarter of 1996.
(E) Net Income (Loss)
As a result of the foregoing, the Partnership's net income of $0.4 million for
the first quarter of 1997, increased from a net loss of $0.1 million during the
same period in 1996. The Partnership's ability to operate and 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 of 1997 is not necessarily indicative of future periods. In
the first quarter of 1997, the Partnership distributed $1.8 million to the
weighted average limited partner unitholders, or $0.25 per depositary unit.
Financial Condition - Capital Resources and Liquidity
The General Partner purchased the Partnership's initial equipment portfolio with
capital raised from its initial equity offering and permanent debt financing. No
further capital contributions from original partners are permitted under the
terms of the Partnership's Limited Partnership Agreement. The Partnership's
total outstanding indebtedness, currently $10.5 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, maintain working capital reserves and to the extent funds
are available make cash distributions to partners.
In the first quarter of 1997, the Partnership used $2.5 million in proceeds
from the sale of assets and other cash on hand to prepay a portion of the fourth
annual $9 million principal installment of the loan due March 31, 1999. In 1996,
the Partnership prepaid the third annual $9 million installment of the loan due
March 31, 1998, and a portion of the fourth annual $9 million installment due
March 31, 1999.
For the three months ended March 31, 1997, the Partnership generated
sufficient operating cash (net cash provided by operating activities plus
distributions from the unconsolidated special purpose entity) to meet its
operating obligations, but used undistributed available cash from prior periods
of approximately $0.4 million to maintain the current level of distributions
($1.9 million) to the partners.
Outlook for the Future
Since the Partnership is in its holding or passive 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. The General Partner
anticipates the liquidation of Partnership assets will be completed by the
scheduled termination of the Partnership at the end of the year 2000.
The Partnership intends to use cash flow from operations to satisfy its
operating requirements, pay loan principal on debt, and pay cash distributions
to the investors.
(This space intentionally left blank)
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
PLM EQUIPMENT GROWTH FUND II
By: PLM Financial Services, Inc.
General Partner
Date: May 13, 1997 By: /s/ David J. Davis
------------------
David J. Davis
Vice President and
Corporate Controller