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, 2002
[ ] 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.)
450 CARILLON PARKWAY SUITE 200
ST. PETERSBURG, FL 33716
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (727) 803-8200
_______________________
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)
CONDENSED BALANCE SHEETS
(in thousands of dollars, except unit amounts)
(unaudited)
June 30, December 31,
2002 2001
------- ------------
ASSETS
Equipment held for operating lease, at cost $ 17,525 $ 21,119
Less accumulated depreciation (15,103) (18,146)
--------- ---------
Net equipment 2,422 2,973
Cash and cash equivalents 3,641 1,958
Accounts receivable, less allowance for doubtful
accounts of $69 in 2002 and $89 in 2001 413 584
Prepaid expenses and other assets 41 18
--------- ---------
Total assets $ 6,517 $ 5,533
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 222 $ 260
Due to affiliates 33 42
--------- ---------
Total liabilities 255 302
Partners' capital:
Limited partners (7,381,165 depositary units in 2002 and 2001) 6,262 5,231
General Partner -- --
--------- ---------
Total partners' capital 6,262 5,231
--------- ---------
Total liabilities and partners' capital $ 6,517 $ 5,533
========= =========
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
CONDENSED STATEMENTS OF OPERATIONS
(in thousands of dollars, except weighted-average unit amounts)
(unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
-------- ------- ------- ------
REVENUES
Lease revenue $ 565 $ 635 $1,206 $1,365
Interest and other income 14 10 21 40
Net gain (loss) on disposition of equipment (11) 30 1,216 191
-------- ------- ------- ------
Total revenues 568 675 2,443 1,596
EXPENSES
Depreciation 217 283 458 583
Repairs and maintenance 234 351 476 815
Equipment operating expenses 59 49 108 140
Management fees to affiliate 28 31 61 61
General and administrative expenses
to affiliates 14 22 37 126
Other general and administrative expenses 184 204 292 434
Provision for (recovery of) bad debts 1 103 (20) 143
-------- ------- ------- ------
Total expenses 737 1,043 1,412 2,302
-------- ------- ------- ------
Net income (loss) $ (169) $ (368) $1,031 $ (706)
PARTNERS' SHARE OF NET INCOME (LOSS):
Limited partners $ (169) $ (379) $1,031 $ (774)
General Partner -- 11 -- 68
-------- ------- ------- ------
Total $ (169) $ (368) $1,031 $ (706)
Limited partners' net income (loss) per
weighted-average depositary unit $(0.02) $(0.05) $ 0.14 $(0.10)
Cash distributions $ -- $ 233 $ -- $1,363
-------- ------- ------- ------
Cash distributions per limited partners'
weighted-average depositary unit $ -- $ 0.03 $ -- $ 0.18
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
CONDENSED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD FROM DECEMBER 31, 2000 TO JUNE 30, 2002
(in thousands of dollars)
(unaudited)
Limited General
Partners Partner Total
Partners' capital as of December 31, 2000 $ 6,552 $ -- $ 6,552
Net (loss) income (26) 68 42
Cash distribution (1,295) (68) (1,363)
-------- ------- --------
Partners' capital as of December 31, 2001 5,231 -- 5,231
Net income 1,031 -- 1,031
-------- ------- --------
Partners' capital as of June 30, 2002 $ 6,262 $ -- $ 6,262
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
For the Six Months
Ended June 30,
2002 2001
-------- -------
OPERATING ACTIVITIES
Net income (loss) $ 1,031 $ (706)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation 458 583
Net gain on disposition of equipment (1,216) (191)
Changes in operating assets and liabilities:
Accounts receivable, net 161 232
Prepaid expenses and other assets (23) (5)
Accounts payable and accrued expenses (38) (252)
Due to affiliates (9) (19)
Lessee deposits and reserve for repairs -- (130)
-------- -------
Net cash provided by (used in) operating activities 364 (488)
INVESTING ACTIVITIES
Proceeds from disposition of equipment 1,319 214
-------- -------
Net cash provided by investing activities 1,319 214
FINANCING ACTIVITIES
Cash distribution paid to limited partners -- (1,295)
Cash distribution paid to General Partner -- (68)
-------- -------
Net cash used in financing activities -- (1,363)
-------- -------
Net increase (decrease) in cash and cash equivalents 1,683 (1,637)
Cash and cash equivalents at beginning of period 1,958 2,538
-------- -------
Cash and cash equivalents at end of period $ 3,641 $ 901
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Opinion of Management
-----------------------
In the opinion of the management of PLM Financial Services, Inc. (FSI or the
General Partner), the accompanying unaudited condensed financial statements
contain all adjustments necessary, consisting primarily of normal recurring
accruals, to present fairly the unaudited condensed financial position of PLM
Equipment Growth Fund II (the Partnership) as of June 30, 2002 and December 31,
2001, the unaudited condensed statements of operations for the three and six
months ended June 30, 2002 and 2001, the unaudited condensed statements of
changes in partners' capital for the period from December 31, 2000 to June 30,
2002, and the unaudited condensed statements of cash flows for the six months
ended June 30, 2002 and 2001. Certain information and note disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted from the accompanying condensed 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, 2001, 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. Cash Distribution
------------------
Cash distributions are recorded when paid and may include amounts in excess of
net income that are considered a return of capital. No cash distributions were
paid to the limited partners during the three and six months ended June 30,
2002. For the three and six months ended June 30, 2001, cash distributions
totaled $0.2 million and $1.4 million, respectively. Cash distributions to the
limited partners of $1.3 million for the six months ended June 30, 2001, were
deemed to be a return of capital.
4. Transactions with General Partner and Affiliates
-----------------------------------------------------
The balance due to affiliates as of June 30, 2002 and December 31, 2001 of
$33,000 and $42,000, respectively, is a payable due to FSI and its affiliate for
management fees.
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
5. Equipment
---------
Owned equipment held for operating leases is stated at cost. The components of
owned equipment were as follows (in thousands of dollars):
June 30, December 31,
2002 2001
======== ===========
Trailers $ 9,388 $ 9,404
Railcars 7,181 10,705
Marine containers 956 1,010
-------- ----------
17,525 21,119
Less accumulated depreciation (15,103) (18,146)
-------- ----------
Net equipment $ 2,422 $ 2,973
As of June 30, 2002, all equipment was on lease, except for 19 marine containers
and 39 railcars with an aggregate net book value of $31,000. As of December 31,
2001, all equipment was on lease, except for 223 railcars and 7 marine
containers with an aggregate net book value of $0.2 million.
For the six months ended June 30, 2002, the Partnership disposed of marine
containers, railcars and trailers with an aggregate net book value of $0.1
million for proceeds of $1.3 million. During the six months ended June 30,
2001, the Partnership sold or disposed of marine containers, trailers, and
railcars, with an aggregate net book value of $23,000, for proceeds of $0.2
million.
6. Operating Segments
-------------------
The Partnership operates or operated in four different segments: aircraft
leasing, marine container leasing, trailer leasing and railcar leasing. Each
equipment leasing segment engages in short-term to mid-term operating leases to
a variety of customers. The following tables present a summary of the operating
segments (in thousands of dollars):
Marine
For the three months ended Container Trailer Railcar All
June 30, 2002 Leasing Leasing Leasing Other 1 Total
REVENUES
Lease revenue $ -- $ 294 $ 271 $ -- $ 565
Interest income and other -- -- -- 14 14
Loss on disposition of equipment -- (11) -- -- (11)
---------- --------- --------- -------- -------
Total revenues -- 283 271 14 568
COSTS AND EXPENSES
Operations support -- 206 72 15 293
Depreciation 1 131 85 -- 217
Management fees to affiliates -- 15 13 -- 28
General and administrative expenses -- 73 29 96 198
Provision for bad debts -- -- 1 -- 1
---------- --------- --------- -------- -------
Total costs and expenses 1 425 200 111 737
----------- --------- -------- --------- -------
Net income (loss) $ (1) $ (142) $ 71 $ (97) $ (169)
----------- --------- -------- --------- -------
Total assets as of June 30, 2002 $ 26 $ 2,570 $ 231 $ 3,690 $6,517
1 Includes certain assets not identifiable to a particular segment, such as
cash and prepaid expenses. Also includes interest income and costs not
identifiable to a particular segment, such as certain operations support
and general and administrative expenses.
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
6. Operating Segments (continued)
-------------------
Marine
For the three months ended Container Trailer Railcar All
June 30, 2001 Leasing Leasing Leasing Other 1 Total
REVENUES
Lease revenue $ 1 $ 370 $ 265 $ (1) $ 635
Interest income and other -- -- -- 10 10
Gain on disposition of equipment 28 2 -- -- 30
---------- --------- --------- -------- -------
Total revenues 29 372 265 9 675
COSTS AND EXPENSES
Operations support -- 223 162 15 400
Depreciation 2 132 149 -- 283
Management fees to affiliates (1) 19 13 -- 31
General and administrative expenses -- 97 26 103 226
Provision for (recovery of) bad debts 17 1 86 (1) 103
----------- --------- --------- --------- -------
Total costs and expenses 18 472 436 117 1,043
----------- --------- --------- --------- -------
Net income (loss) $ 11 $ (100) $ (171) $ (108) $ (368)
Marine
For the six months ended Container Trailer Railcar All
June 30, 2002 Leasing Leasing Leasing Other 1 Total
REVENUES
Lease revenue $ -- $ 724 $ 482 $ -- $1,206
Interest income and other -- -- -- 21 21
Gain (loss) on disposition of equipment 8 (4) 1,212 -- 1,216
---------- -------- -------- --------- -------
Total revenues 8 720 1,694 21 2,443
COSTS AND EXPENSES
Operations support -- 456 97 31 584
Depreciation 2 262 194 -- 458
Management fees to affiliates -- 35 26 -- 61
General and administrative expenses -- 140 54 135 329
Provision for (recovery of) bad debts -- 25 (45) -- (20)
---------- -------- -------- --------- -------
Total costs and expenses 2 918 326 166 1,412
---------- -------- -------- --------- -------
Net income (loss) $ 6 $ (198) $ 1,368 $ (145) $1,031
Marine
For the six months ended Container Trailer Railcar Aircraft All
June 30, 2001 Leasing Leasing Leasing Leasing Other 1 Total
REVENUES
Lease revenue $ (20) $ 770 $ 616 $ -- $ (1) $1,365
Interest income and other -- -- -- -- 40 40
Gain (loss) on disposition of equipment 196 2 3 (10) -- 191
---------- -------- -------- --------- -------- ------
Total revenues 176 772 619 (10) 39 1,596
COSTS AND EXPENSES
Operations support -- 388 491 -- 76 955
Depreciation 18 265 300 -- -- 583
Management fees to affiliates (2) 38 25 -- -- 61
General and administrative expenses 1 148 46 1 364 560
Provision for (recovery of) bad debts 17 9 118 -- (1) 143
---------- -------- -------- --------- -------- ------
Total costs and expenses 34 848 980 1 439 2,302
---------- -------- -------- --------- -------- ------
Net income (loss) $ 142 $ (76) $ (361) $ (11) $ (400) $(706)
1 Includes interest income and costs not identifiable to a particular segment,
such as certain operations support and general and administrative expenses.
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
7. Net Income (Loss) Per Weighted-Average Depositary Unit
------------------------------------------------------------
Net income (loss) per weighted-average depositary unit was computed by dividing
net income (loss) attributable to the 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, 2002 and 2001 was 7,381,165.
8 Liquidation and Special Distributions
----------------------------------------
On January 1, 1999, the General Partner began the liquidation phase of the
Partnership and commenced an orderly liquidation of the Partnership assets. The
General Partner is actively marketing the remaining equipment portfolio with the
intent of maximizing sale proceeds. During the liquidation phase of the
Partnership, the equipment will continue to be leased under operating leases
until sold. 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. Upon final
liquidation, the Partnership will be dissolved.
The Partnership is not permitted to reinvest proceeds from the disposition of
equipment. These proceeds, in excess of operational cash requirements and
reasonable reserves, are periodically paid out to limited partners in the form
of special distributions. No special distributions were paid in the six months
ended June 30, 2002 and 2001. The sales and liquidations occur because of 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, 2002 and 2001
- -------------------------------------------------------------------
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance and
equipment operating expenses) on owned equipment increased during the second
quarter of 2002 compared to the same quarter of 2001. 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 6 to the unaudited condensed financial statements), are not
included in the owned equipment operation discussion because they are indirect
in nature and not a result of operations but the result of owning a portfolio of
equipment. The following table presents lease revenues less direct expenses by
segment (in thousands of dollars):
For the Three Months
Ended June 30,
2002 2001
=================
Railcars $199 $103
Trailers 88 147
Marine containers -- 1
Railcars: Railcar lease revenues and direct expenses were $0.3 million and $0.1
million, respectively, for the second quarter of 2002, compared to $0.3 million
and $0.2 million, respectively, during the same quarter of 2001. Direct
expenses decreased $0.1 million in the second quarter of 2002 compared to the
same period of 2001 due to fewer repairs being required for the railcar
portfolio in 2002.
Trailers: Trailer lease revenues and direct expenses were $0.3 million and
$0.2 million, respectively, for the second quarter of 2002, compared to $0.4
million and $0.2 million, respectively, during the same quarter of 2001.
Trailer lease revenue decreased $0.1 million in the three months ended June 30,
2002 compared to the same period of 2001 due to lower utilization on the
Partnership's trailer fleet.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $0.4 million for the second quarter of 2002 decreased
from $0.6 million for the same period in 2001. Significant variances are
explained as follows:
(i) A $0.1 million decrease in depreciation expense from 2001 levels
reflects the effect of asset dispositions in 2002 and 2001.
(ii) A $0.1 million decrease in the provision for bad debts due to fewer
receivables being reserved for as bad debts in the second quarter of 2002
compared to the same period of 2001.
(C) Net (Loss) Gain on Disposition of Owned Equipment
Net loss on disposition of equipment in the second quarter of 2002 totaled
$11,000, and resulted from the disposition of trailers. Net gain on disposition
of equipment for the second quarter of 2001 totaled $30,000, and resulted from
the disposal or sale of marine containers and trailers, with an aggregate net
book value of $4,000, for aggregate proceeds of $34,000.
(D) Net Loss
As a result of the foregoing, the Partnership's net loss was $0.2 million for
the second quarter of 2002, compared to net loss of $0.4 million during the
second quarter of 2001. 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 2002
is not necessarily indicative of future periods.
Comparison of the Partnership's Operating Results for the Six Months Ended June
- --------------------------------------------------------------------------------
30, 2002 and 2001
- --------------------
(A) Owned Equipment Operations
Lease revenues less direct expenses on owned equipment increased during the six
months ended June 30, 2002 compared to the same period of 2001. The following
table presents lease revenues less direct expenses by segment (in thousands of
dollars):
For the Six Months
Ended June 30,
2002 2001
=================
Railcars $385 $125
Trailers 268 382
Marine containers -- (20)
Railcars: Railcar lease revenues and direct expenses were $0.5 million and $0.1
million, respectively, for the six months ended June 30, 2002, compared to $0.6
million and $0.5 million, respectively, during the same period of 2001. Lease
revenue decreased $0.1 million due to the disposition of railcars in 2001 and
2002. Direct expenses decreased $0.4 million in the six months ended June 30,
2002 compared to the same period of 2001 due to fewer repairs being required for
the railcar portfolio in 2002.
Trailers: Trailer lease revenues and direct expenses were $0.7 million and
$0.5 million, respectively, for the six months ended June 30, 2002, compared to
$0.8 million and $0.4 million, respectively, during the same period of 2001.
Trailer lease revenue decreased $46,000 in the six months ended June 30, 2002
compared to the same period of 2001 due to lower utilization on the
Partnership's trailer fleet. Trailer direct expenses increased $0.1 million in
the six months ended June 30, 2002 compared to 2001 due to increased repair and
maintenance costs in 2002.
Marine containers: Marine container lease revenues were $0 and $(20,000) in
the six months ended June 30, 2002 and 2001, respectively. The negative $20,000
of lease revenues in the six months ended June 30, 2001 resulted from actual
lease revenue in previous periods being lower than previously accrued. The
Partnership has been disposing of marine containers in 2001 and 2002.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $0.8 million for the six months ended June 30, 2002
decreased from $1.3 million for the same period in 2001. Significant variances
are explained as follows:
(i) A $0.2 million decrease in general and administrative expenses
during the six months ended June 30, 2002 resulted from the reduction in the
size of the Partnership's equipment portfolio over the last twelve months.
(ii) A $0.2 million decrease in the provision for bad debts due to fewer
receivables being reserved for as bad debts in the six months ended June 30,
2002 compared to the same period of 2001.
(iii) A $0.1 million decrease in depreciation expense from 2001 levels
reflects the effect of asset dispositions in 2002 and 2001.
(C) Net Gain on Disposition of Owned Equipment
Net gain on disposition of equipment in the six months ended June 30, 2002
totaled $1.2 million, and resulted from the disposition of marine containers,
railcars and trailers with an aggregate net book value of $0.1 million for
aggregate proceeds of $1.3 million. Net gain on disposition of equipment for
the six months ended June 30, 2001 totaled $0.2 million, and resulted from the
disposal or sale of marine containers, trailers, and railcars, with an aggregate
net book value of $23,000, for aggregate proceeds of $0.2 million.
(D) Net Income (Loss)
As a result of the foregoing, the Partnership's net income was $1.0 million for
the six months ended June 30, 2002, compared to net loss of $0.7 million during
the six months ended June 30, 2001. 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, 2002 is not necessarily indicative of future periods.
(II) CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the General Partner
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On a regular basis, the General Partner reviews
these estimates including those related to asset lives and depreciation methods,
impairment of long-lived assets, allowance for doubtful accounts, reserves
related to legally mandated equipment repairs and contingencies and litigation.
These estimates are based on the General Partner's historical experience and on
various other assumptions believed to be reasonable under the circumstances.
Actual results may differ from these estimates under different assumptions or
conditions. The General Partner believes, however, that the estimates,
including those for the above-listed items, are reasonable and that actual
results will not vary significantly from the estimated amounts.
The General Partner believes the following critical accounting policies affect
the more significant judgments and estimates used in the preparation of the
Partnership's financial statements:
Asset lives and depreciation methods: The Partnership's primary business
involves the purchase and subsequent lease of long-lived transportation and
related equipment. The General Partner has chosen asset lives that it believes
correspond to the economic life of the related asset. The General Partner has
chosen a deprecation method that it believes matches the benefit to the
Partnership from the asset with the associated costs. These judgments have been
made based on the General Partner's expertise in each equipment segment that the
Partnership operates. If the asset life and depreciation method chosen does not
reduce the book value of the asset to at least the potential future cash flows
from the asset to the Partnership, the Partnership would be required to record a
loss on revaluation. Likewise, if the net book value of the asset was reduced
by an amount greater than the economic value has deteriorated, the Partnership
may record a gain on sale upon final disposition of the asset.
Impairment of long-lived assets: On a regular basis, the General Partner
reviews the carrying value of its equipment to determine if the carrying value
of the assets may not be recoverable in consideration of current economic
conditions. This requires the General Partner to make estimates related to
future cash flows from each asset as well as the determination if the
deterioration is temporary or permanent. If these estimates or the related
assumptions change in the future, the Partnership may be required to record
additional impairment charges.
Allowance for doubtful accounts: The Partnership maintains allowances for
doubtful accounts for estimated losses resulting from the inability of the
lessees to make the lease payments. These estimates are primarily based on the
amount of time that has lapsed since the related payments were due as well as
specific knowledge related to the ability of the lessees to make the required
payments. If the financial condition of the Partnership's lessees were to
deteriorate, additional allowances could be required that would reduce income.
Conversely, if the financial condition of the lessees were to improve or if
legal remedies to collect past due amounts were successful, the allowance for
doubtful accounts may need to be reduced and income would be increased.
Contingencies and litigation: The Partnership is subject to legal proceedings
involving ordinary and routine claims related to its business. The ultimate
legal and financial liability with respect to such matters cannot be estimated
with certainty and requires the use of estimates in recording liabilities for
potential litigation settlements. Estimates for losses from litigation are made
after consultation with outside counsel. If estimates of potential losses
increase or the related facts and circumstances change in the future, the
Partnership may be required to record additional litigation expense.
(III) FINANCIAL CONDITION - CAPITAL RESOURCES AND LIQUIDITY
For the six months ended June 30, 2002, the Partnership generated $0.4 million
in operating cash to meets its operating obligations.
During the six months ended June 30, 2002, the Partnership disposed of marine
containers, railcars and trailers and received proceeds of $1.3 million.
Accounts receivable decreased $0.2 million during the six months ended June 30,
2002 due to the reduction in 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.
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. 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 partners
after final disposal of assets and settlement of liabilities, the amounts cannot
be accurately determined prior to actual disposal of the equipment.
(IV) OUTLOOK FOR THE FUTURE
Since the Partnership is in its active liquidation phase, the General Partner is
seeking to selectively re-lease or sell assets as the existing leases expire.
Sale decisions may 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 2002 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. Other factors affecting the Partnership's contribution in 2002 and
beyond include:
1. Railcar loadings in North America have weakened over the past year.
Utilization and lease rates have been decreasing over this period. Railcar
contribution may decrease in 2002 as existing leases expire and renewal leases
are negotiated.
2. Industry-wide utilization of intermodal trailers decreased 12% in the six
months ended June 30, 2002 compared to the six months ended June 30, 2001. This
has led to lower contribution from the Partnership's trailers.
3. The Partnership's fleet of marine containers is in excess of twelve years of
age and is no longer suitable for use in international commerce either due to
its specific physical condition, or lessee's preferences for newer equipment.
Demand for the Partnership's marine containers will continue to be weak due to
their age.
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 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 decide to reduce the Partnership's exposure to those
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 unitholders.
(V) FORWARD-LOOKING INFORMATION
Except for historical information contained herein, 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
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The Partnership's primary market risk exposure is that of currency devaluation
risk. During the six months ended June 30, 2002, 20% of the Partnership's total
lease revenues came from non-United States domiciled lessees. Most of the
Partnership's leases require payment in United States (U.S.) currency. If these
lessees' currency devalues against the U.S. dollar, the lessees could encounter
difficulty in making the U.S. dollar denominated lease payments.
(This space intentionally left blank)
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits
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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 12, 2002 By: /s/ Stephen M. Bess
----------------------
President and
Current Chief Accounting Officer
CERTIFICATION
The undersigned hereby certifies, in their capacity as an officer of the General
Partner of PLM Equipment Growth Fund II (the Partnership), that the Quarterly
Report of the Partnership on Form 10-Q for the period ended June 30, 2002, fully
complies with the requirements of Section 13(a) of the Securities Exchange Act
of 1934 and that the information contained in such report fairly presents, in
all material respects, the financial condition of the Partnership at the end of
such period and the results of operations of the Partnership for such period.
PLM EQUIPMENT GROWTH FUND II
By:PLM Financial Services, Inc.
General Partner
Date: August 12, 2002 By: /s/ Stephen M. Bess
----------------------
President and
Current Chief Accounting Officer
Date: August 12, 2002 By: /s/ James A. Coyne
---------------------
James A. Coyne
Chief Financial Officer