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, 2001
[ ] 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.)
120 Montgomery Street
Suite 1350, San Francisco, CA 94104
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (415) 445-3201
-----------------------
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)
September 30, December 31,
2001 2000
-------------------------------------
ASSETS
Equipment held for operating lease, at cost $ 23,296 $ 24,727
Less accumulated depreciation (19,960) (20,483)
-------------------------------------
Net equipment 3,336 4,244
Cash and cash equivalents 1,168 2,538
Accounts receivable, less allowance for doubtful accounts
of $210 in 2001 and $57 in 2000 476 718
Prepaid expenses 22 35
-------------------------------------
Total assets $ 5,002 $ 7,535
=====================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 253 $ 482
Due to affiliates 34 52
Lessee deposits and reserve for repairs 212 449
-------------------------------------
Total liabilities 499 983
-------------------------------------
Partners' capital:
Limited partners (7,381,475 depositary units
as of September 30, 2001 and December 31, 2000) 4,503 6,552
General Partner -- --
-------------------------------------
Total partners' capital 4,503 6,552
-------------------------------------
Total liabilities and partners' capital $ 5,002 $ 7,535
=====================================
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 Nine Months
Ended September 30, Ended September 30,
2001 2000 2001 2000
---------------------------------------------------------------
REVENUES
Lease revenue $ 656 $ 1,290 $ 2,021 $ 4,156
Interest and other income 9 24 50 60
Net gain on disposition of equipment 153 276 343 778
---------------------------------------------------------------
Total revenues 818 1,590 2,414 4,994
---------------------------------------------------------------
EXPENSES
Depreciation 284 391 867 1,236
Repairs and maintenance 266 359 1,081 1,217
Equipment operating expenses 30 30 91 90
Insurance expense 17 15 97 45
Management fees to affiliate 32 65 93 208
General and administrative expenses
to affiliates 23 59 158 178
Other general and administrative expenses 136 182 560 609
Provision for (recovery of) bad debts 10 (19) 153 (9)
---------------------------------------------------------------
Total expenses 798 1,082 3,100 3,574
---------------------------------------------------------------
Equity in net income of an
unconsolidated special-purpose entity -- -- -- 1,304
---------------------------------------------------------------
Net income (loss) $ 20 $ 508 $ (686) $ 2,724
===============================================================
PARTNERS' SHARE OF NET INCOME (LOSS):
Limited partners $ 20 $ 452 $ (754) $ 2,515
General Partner -- 56 68 209
---------------------------------------------------------------
Total $ 20 $ 508 $ (686) $ 2,724
===============================================================
Limited partners' net income (loss) per
weighted-average depositary unit $ -- $ 0.06 $ (0.10) $ 0.34
===============================================================
Cash distributions $ -- $ 1,130 $ 1,363 $ 3,403
Special cash distributions -- -- -- 777
---------------------------------------------------------------
Total cash distributions $ -- $ 1,130 $ 1,363 $ 4,180
===============================================================
Per weighted-average depositary unit:
Cash distributions $ -- $ 0.15 $ 0.18 $ 0.44
Special cash distributions -- -- -- 0.10
---------------------------------------------------------------
Total cash distributions $ -- $ 0.15 $ 0.18 $ 0.54
===============================================================
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, 1999 to September 30, 2001
(in thousands of dollars)
(unaudited)
Limited General
Partners Partner Total
---------------------------------------------------
Partners' capital as of December 31, 1999 $ 7,656 $ -- $ 7,656
Net income 3,942 265 4,207
Cash distribution (4,308) (226) (4,534)
Special cash distribution (738) (39) (777)
---------------------------------------------------
Partners' capital as of December 31, 2000 6,552 -- 6,552
Net income (loss) (754) 68 (686)
Cash distribution (1,295) (68) (1,363)
---------------------------------------------------
Partners' capital as of September 30, 2001 $ 4,503 $ -- $ 4,503
===================================================
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 Nine Months
Ended September 30,
2001 2000
----------------------------------
OPERATING ACTIVITIES
Net income (loss) $ (686) $ 2,724
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation 867 1,236
Net gain on disposition of equipment (343) (778)
Equity in net income of an unconsolidated special-purpose
entity -- (1,304)
Changes in operating assets and liabilities:
Accounts receivable, net 252 230
Prepaid expenses 13 46
Accounts payable and accrued expenses (229) (157)
Due to affiliates (18) (11)
Lessee deposits and reserve for repairs (237) (85)
----------------------------------
Net cash (used in) provided by operating activities (381) 1,901
----------------------------------
INVESTING ACTIVITIES
Proceeds from disposition of equipment 374 1,398
Liquidation distributions from an unconsolidated special-purpose entity -- 1,824
Additional investments in an unconsolidated special-purpose entity -- (152)
----------------------------------
Net cash provided by investing activities 374 3,070
----------------------------------
FINANCING ACTIVITIES
Cash distribution paid to limited partners (1,295) (3,233)
Cash distribution paid to General Partner (68) (170)
Special cash distribution paid to limited partners -- (738)
Special cash distribution paid to General Partner -- (39)
----------------------------------
Net cash used in financing activities (1,363) (4,180)
----------------------------------
Net (decrease) increase in cash and cash equivalents (1,370) 791
Cash and cash equivalents at beginning of period 2,538 894
----------------------------------
Cash and cash equivalents at end of period $ 1,168 $ 1,685
==================================
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 condensed financial position of PLM Equipment
Growth Fund II (the Partnership) as of September 30, 2001 and December 31, 2000,
the condensed statements of operations for the three and nine months ended
September 30, 2001 and 2000, the condensed statements of changes in partners'
capital for the period from December 31, 1999 to September 30, 2001, and the
condensed statements of cash flows for the nine months ended September 30, 2001
and 2000. 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, 2000,
on file at the Securities and Exchange Commission.
2. SCHEDULE OF PARTNERSHIP PHASES
The Partnership, in accordance with its limited partnership agreement, entered
its liquidation phase on January 1, 1999, and has commenced an orderly
liquidation of the Partnership's assets. The Partnership will terminate on
December 31, 2006, unless terminated earlier upon the sale of all equipment or
by certain other events. The General Partner may no longer reinvest cash flows
and surplus funds in equipment. All future cash flows and surplus funds, if any,
are to be used for distributions to partners, except to the extent used to
maintain reasonable reserves. During the liquidation phase, the Partnership's
assets will continue to be recorded at the lower of the carrying amount or fair
value less cost to sell.
3. RECLASSIFICATION
Certain amounts on the 2000 financial statements have been reclassified to
conform to the 2001 presentation.
4. CASH DISTRIBUTION
Cash distributions are recorded when paid and may include amounts in excess of
net income that are considered to represent a return of capital. For the three
months ended September 30, 2001 and 2000, cash distributions totaled $-0- and
$1.1 million, respectively. For the nine months ended September 30, 2001 and
2000, cash distributions totaled $1.4 million and $3.4 million, respectively. In
addition, a $0.8 million special distribution was paid to the partners during
the nine months ended September 30, 2000, from the proceeds realized on the sale
of equipment in 2000 and 1999. No special distributions were paid in the three
and nine months ended September 30, 2001. Cash distributions to the limited
partners of $1.3 million and $1.5 million for the nine months ended September
30, 2001 and 2000, respectively, were deemed to be a return of capital.
5. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES
The balance due to affiliates as of September 30, 2001 and December 31, 2000
totaled $34,000 and $52,000, respectively, and are due to FSI and its affiliate
for management fees.
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
6. EQUIPMENT
Owned equipment held for operating leases is stated at cost. Equipment held for
sale is stated at the lower of the equipment's depreciated cost or fair value,
less cost to sell, and is subject to a pending contract for sale. The components
of owned equipment were as follows (in thousands of dollars):
September 30, December 31,
2001 2000
--------------------------------------
Railcars $ 12,633 $ 12,712
Trailers 9,466 9,510
Marine containers 1,197 2,505
-------------------------------------
23,296 24,727
Less accumulated depreciation (19,960) (20,483)
-------------------------------------
Net equipment $ 3,336 $ 4,244
=====================================
As of September 30, 2001, all equipment was on lease, except for 326 railcars
and 2 marine containers with an aggregate net book value of $0.3 million. As of
December 31, 2000, all equipment was on lease, except for 203 railcars and 106
marine containers with an aggregate net book value of $0.4 million.
During the nine months ended September 30, 2001, the Partnership disposed of
marine containers, trailers, and railcars, with an aggregate net book value of
$41,000, for proceeds of $0.4 million. For the nine months ended September 30,
2000, the Partnership disposed of marine containers, trailers, and railcars,
with an aggregate net book value of $0.6 million, for proceeds of $1.4 million.
7. OPERATING SEGMENTS
The Partnership operates or operated in four different segments: railcar
leasing, trailer leasing, marine container leasing and aircraft leasing. Each
equipment leasing segment engages in short-term to mid-term operating leases to
a variety of customers. The following tables present a summary of the operating
segments (in thousands of dollars):
Marine
For the three months ended Railcar Trailer Container
September 30, 2001 Leasing Leasing Leasing Other(1) Total
---------------------------------- --------- --------- --------- --------- ----------
REVENUES
Lease revenue $ 244 $ 414 $ (2) $ -- $ 656
Interest income and other -- -- -- 9 9
Gain on disposition of equipment 7 14 132 -- 153
------------------------------------------------------
Total revenues 251 428 130 9 818
COSTS AND EXPENSES
Operations support 99 198 -- 16 313
Depreciation 150 133 1 -- 284
Management fees to affiliate 11 21 -- -- 32
General and administrative expenses 24 75 -- 60 159
Provision for (recovery of) bad 19 -- (9) -- 10
debts
------------------------------------------------------
Total costs and expenses 303 427 (8) 76 798
------------------------------------------------------
Net income (loss) $ (52) $ 1 $ 138 $ (67) $ 20
======================================================
Total assets as of September 30, 2001 $ 617 $ 3,177 $ 18 $ 1,190 $ 5,002
======================================================
(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)
7. OPERATING SEGMENTS (CONTINUED)
Marine
For the three months ended Railcar Trailer Container
September 30, 2000 Leasing Leasing Leasing Other(1) Total
---------------------------------- --------- --------- --------- --------- ----------
REVENUES
Lease revenue $ 799 $ 502 $ (11) $ -- $ 1,290
Interest income and other -- -- -- 24 24
Gain (loss) on disposition of 40 278 (42) -- 276
equipment
------------------------------------------------------
Total revenues 839 780 (53) 24 1,590
COSTS AND EXPENSES
Operations support 183 210 1 10 404
Depreciation 178 165 48 -- 391
Management fees to affiliate 42 24 (1) -- 65
General and administrative expenses 33 99 1 108 241
Provision for (recovery of) bad (21 ) 2 -- -- (19 )
debts
------------------------------------------------------
Total costs and expenses 415 500 49 118 1,082
------------------------------------------------------
Net income (loss) $ 424 $ 280 $ (102) $ (94) $ 508
======================================================
Total assets as of September 30, 2000 $ 1,500 $ 3,756 $ 207 $ 1,686 $ 7,149
======================================================
Marine
For the nine months ended Railcar Trailer Container Aircraft
September 30, 2001 Leasing Leasing Leasing Leasing Other(1) Total
---------------------------------- --------- --------- --------- --------- --------- -----------
REVENUES
Lease revenue $ 860 $ 1,184 $ (23) $ -- $ -- $ 2,021
Interest income and other -- -- -- -- 50 50
Gain (loss) on disposition of 10 15 328 (10) -- 343
equipment
-----------------------------------------------------------------
Total revenues 870 1,199 305 (10) 50 2,414
COSTS AND EXPENSES
Operations support 590 586 -- -- 93 1,269
Depreciation 450 398 19 -- -- 867
Management fees to affiliate 36 59 (2) -- -- 93
General and administrative expenses 70 223 1 -- 424 718
Provision for bad debts 136 9 8 -- -- 153
-----------------------------------------------------------------
Total costs and expenses 1,282 1,275 26 -- 517 3,100
-----------------------------------------------------------------
Net income (loss) $ (412 )$ (76 ) $ 279 (10) $ (467) $ (686)
=================================================================
Total assets as of September 30, 2001 $ 617 $ 3,177 $ 18 -- $ 1,190 $ 5,002
=================================================================
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.
(This space intentionally left blank)
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
7. OPERATING SEGMENTS (continued)
Marine
For the nine months ended Railcar Trailer Container Aircraft
September 30, 2000 Leasing Leasing Leasing Leasing Other(1) Total
---------------------------------- --------- --------- --------- --------- --------- -----------
REVENUES
Lease revenue $ 2,593 $ 1,486 $ 77 $ -- $ -- $ 4,156
Interest income and other -- -- -- -- 60 60
Gain (loss) on disposition of 615 300 (137) -- -- 778
equipment
-----------------------------------------------------------------
Total revenues 3,208 1,786 (60) -- 60 4,994
COSTS AND EXPENSES
Operations support 781 540 3 -- 28 1,352
Depreciation 557 508 171 -- -- 1,236
Management fees to affiliate 130 74 4 -- -- 208
General and administrative expenses 159 240 4 2 382 787
Provision for (recovery of) bad 8 (17) -- -- -- (9)
debts
-----------------------------------------------------------------
Total costs and expenses 1,635 1,345 182 2 410 3,574
-----------------------------------------------------------------
Equity in net income of USPE -- -- -- 1,304 -- 1,304
-----------------------------------------------------------------
Net income (loss) $ 1,573 $ 441 $ (242) 1,302 $ (350) $ 2,724
=================================================================
Total assets as of September 30, 2000 $ 1,500 $ 3,756 $ 207 -- $ 1,686 $ 7,149
=================================================================
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.
8. 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 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 nine months ended September 30, 2001 and 2000 was 7,381,475.
9. LIQUIDATION AND SPECIAL DISTRIBUTIONS
On January 1, 1999, the General Partner began the liquidation phase of the
Partnership with the intent to commence an orderly liquidation of the
Partnership assets. The General Partner is actively marketing the remaining
equipment portfolio with the intent of maximizing sale proceeds. As sale
proceeds are received, the General Partner intends to periodically declare
special distributions to distribute the sale proceeds to the partners. During
the liquidation phase of the Partnership, the equipment will continue to be
leased under operating leases until sold. Operating cash flows, to the extent
they exceed Partnership expenses and subject to the Partnership's working
capital requirement, will continue to be distributed from time to time. The
amounts reflected for assets and liabilities of the Partnership have not been
adjusted to reflect liquidation values. The equipment portfolio continues to be
carried at the lower of depreciated cost or fair value less cost to dispose.
Although the General Partner estimates that there will be distributions after
liquidation of assets and liabilities, the amounts cannot be accurately
determined prior to actual liquidation of the equipment. Any excess proceeds
over expected Partnership obligations will be distributed to the Partners
throughout the liquidation period. Upon final liquidation, the Partnership will
be dissolved.
The Partnership is no longer permitted to reinvest proceeds from sales or
liquidations of equipment. These proceeds, in excess of operational cash
requirements, are periodically paid out to limited partners in the form of
special distributions. The Partnership paid a special distribution of $0.8
million in the nine months ended September 30, 2000. No special distributions
were paid in the nine months ended September 30, 2001. The sales and
liquidations occur because of certain damaged equipment, the determination by
the General Partner that it is the appropriate time to maximize the return on an
asset through sale of that asset and, in some cases, the ability of the lessee
to exercise purchase options.
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
10. CONTINGENCIES
The Partnership, together with affiliates, has initiated litigation in various
official forums in India against a defaulting Indian airline lessee to repossess
Partnership property and to recover damages for failure to pay rent and failure
to maintain such property in accordance with relevant lease contracts. The
Partnership has repossessed all of its property previously leased to such
airline, and the airline has ceased operations. In response to the Partnership's
collection efforts, the airline filed counterclaims against the Partnership in
excess of the Partnership's claims against the airline. The General Partner
believes that the airline's counterclaims are completely without merit, and the
General Partner will defend against such counterclaims. The General Partner
believes the likelihood of an unfavorable outcome from the counterclaims is
remote.
During 2001, the General Partner has decided to minimize its collection efforts
from the India lessee in order to save the Partnership from incurring additional
expenses associated with trying to collect from a lessee that has a limited
ability to pay.
(This space intentionally left blank)
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 SEPTEMBER 30, 2001 AND 2000
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the third quarter of 2001 compared to the same quarter of 2000.
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 7 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 equipment type (in thousands of dollars):
For the Three Months
Ended September 30,
2001 2000
----------------------------
Trailers $ 216 $ 292
Railcars 145 616
Marine containers (2) (12)
Trailers: Trailer lease revenues and direct expenses were $0.4 million and $0.2
million, respectively, for the third quarter of 2001, compared to $0.5 million
and $0.2 million, respectively, during the same quarter of 2000. The decrease in
trailer contribution in the third quarter of 2001 was primarily due to the
disposition of trailers in 2000 and 2001.
Railcars: Railcar lease revenues and direct expenses were $0.2 million and $0.1
million, respectively, for the third quarter of 2001, compared to $0.8 million
and $0.2 million, respectively, during the same quarter of 2000. The decrease in
railcar contribution in the third quarter of 2001 was primarily due to the
disposition of railcars in 2000 and 2001.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $0.5 million for the third quarter of 2001 decreased
from $0.7 million for the same quarter in 2000. Significant variances are
explained as follows:
(i) A $0.1 million decrease in depreciation expense from 2000 levels was
caused by equipment dispositions during 2001 and 2000.
(ii) A $0.1 million decrease in administrative expenses during the third
quarter 2001 compared to the same period of 2000 was primarily due to a decrease
in professional services required by the Partnership.
(iii) A $33,000 decrease in management fees was due to lower lease revenues
earned during the third quarter of 2001 compared to the same period of 2000.
(C) Net Gain on Disposition of Owned Equipment
Net gain on disposition of equipment for the third quarter of 2001 totaled $0.2
million, and resulted from the sale of marine containers, railcars, and
trailers, with an aggregate net book value of $19,000, for proceeds of $0.2
million. For the same quarter in 2000, net gain on disposition of equipment
totaled $0.3 million, and resulted from the sale of marine containers, trailers,
and railcars with an aggregate net book value of $0.1 million, for proceeds of
$0.4 million.
(D) Net Income
As a result of the foregoing, the Partnership's net income was $20,000 for the
third quarter of 2001, compared to net income of $0.5 million during the third
quarter of 2000. 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 third quarter of 2001 is not
necessarily indicative of future periods.
COMPARISON OF THE PARTNERSHIP'S OPERATING RESULTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001 AND 2000
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the nine months ended September 30, 2001 compared to the same
period of 2000. The following table presents lease revenues less direct expenses
by equipment type (in thousands of dollars):
For the Nine Months
Ended September 30,
2001 2000
----------------------------
Trailers $ 598 $ 946
Railcars 270 1,812
Marine containers (23) 74
Trailers: Trailer lease revenues and direct expenses were $1.2 million and $0.6
million, respectively, for the nine months ended September 30, 2001, compared to
$1.5 million and $0.5 million, respectively, during the same quarter of 2000.
The decrease in trailer contribution was due to the sale of 32% of the
Partnership's trailers during 2000.
Railcars: Railcar lease revenues and direct expenses were $0.9 million and $0.6
million, respectively, for the nine months ended September 30, 2001, compared to
$2.6 million and $0.8 million, respectively, during the same quarter of 2000.
The decrease in railcar contribution during the nine months ended September 30,
2001 was due to the disposition of railcars during 2000 and 2001.
Marine containers: Marine container lease revenues were $(23,000) and $0.1
million during the nine months ended September 30, 2001 and 2000, respectively.
The decrease in marine container contribution in the nine months ended September
30, 2001 was due to the disposition of marine containers in 2000 and 2001. The
negative lease revenues during the nine months ended September 30, 2001 was
caused by actual lease revenues in 2000 being less than had been previously
reported.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $1.8 million for the nine months ended September 30,
2001 decreased from $2.2 million for the same period in 2000. Significant
variances are explained as follows:
(i) A $0.4 million decrease in depreciation expense from 2000 levels
reflects the effect of equipment dispositions during 2001 and 2000.
(ii) A $0.1 million decrease in management fees was due to lower lease
revenues earned during the nine months ended September 30, 2001 compared to the
same period of 2000.
(iii) A $0.1 million decrease in administrative expenses during the nine
months ended September 30, 2001 was primarily due to a decrease in professional
services required by the Partnership.
(iv) A $0.2 million increase in the provision for bad debts was based on
the General Partner's evaluation of the collectability of receivables compared
to the same period of 2000.
(C) Net Gain on Disposition of Owned Equipment
Net gain on disposition of equipment for the nine months ended September 30,
2001 totaled $0.3 million, and resulted from the sale of marine containers,
trailers, and railcars, with an aggregate net book value of $41,000, for
proceeds of $0.4 million. For the same period in 2000, net gain on disposition
of equipment totaled $0.8 million, and resulted from the sale of marine
containers, trailers, and railcars, with an aggregate net book value of $0.6
million, for proceeds of $1.4 million.
(D) Equity in Net Income of an Unconsolidated Special-Purpose Entity
Equity in net income of an USPE represents the Partnership's share of the net
income generated from the operation of a jointly-owned aircraft accounted for
under the equity method.
As of September 30, 2001, the Partnership had no remaining interests in USPEs.
During the nine months ended September 30, 2000, net income of $1.3 million
resulted from the gain on sale of the Partnership's interest in the USPE of $1.5
million, partially offset by depreciation expense, direct expenses, and
administrative expenses of $0.2 million.
(E) Net Income (Loss)
As a result of the foregoing, the Partnership's net loss was $0.7 million for
the nine months ended September 30, 2001, compared to net income of $2.7 million
during the same period of 2000. 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 nine months
ended September 30, 2001 is not necessarily indicative of future periods. In the
nine months ended September 30, 2001, the Partnership distributed $1.3 million
to the limited partners, or $0.18 per weighted-average limited partnership unit.
(II) FINANCIAL CONDITION - CAPITAL RESOURCES AND LIQUIDITY
For the nine months ended September 30, 2001, the Partnership used $0.4 million
of undistributed cash from prior periods and equipment sales proceeds to meet
its operating obligations, and used undistributed cash from prior periods as
well as proceeds from equipment sales proceeds of approximately $1.4 million to
pay cash distributions (total of $1.4 million in the nine months ended September
30, 2001) to the partners.
During the nine months ended September 30, 2001, the Partnership disposed of
marine containers, trailers, and railcars, with an aggregate net book value of
$41,000, for proceeds of $0.4 million.
Accounts receivable decreased $0.2 million during the nine months ended
September 30, 2001 due to an increase in the allowance for doubtful accounts of
$0.2 million and the timing of cash receipts of $0.1 million.
Accounts payable and accrued expenses decreased $0.2 million during the nine
months ended September 30, 2001 due to a decrease in trade accounts payable
resulting from the timing of payments of invoices to the vendors.
Lessee deposits and reserve for repairs decreased $0.2 million during the nine
months ended September 30, 2001 due to the decrease in reserves for repairs
resulting from the sale of marine containers in 2001.
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. Although distribution levels may be reduced, significant asset sales
may result in potential 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.
(III) 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 will cause the operating performance of the Partnership to
decline over the remainder of its life.
Several factors may affect the Partnership's operating performance in the
remainder of 2001 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 2001 and beyond
includes:
1. The cost of new marine containers have been at historic lows for the past
several years which has caused downward pressure on per diem lease rates for
this type of equipment.
2. Railcar loadings in North America for the nine months ending September 30,
2001 were below those of 2000. This decrease has led to lower utilization and
lower contribution to the Partnership as existing leases expire and renewal
leases are negotiated.
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 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 equipment markets in which it determines that it cannot operate
equipment and achieve acceptable rates of return.
The unpredictability of some of these factors, or of their occurrence, makes it
difficult for the General Partner to clearly define trends or influences that
may impact the performance of the Partnership's equipment.
The Partnership intends to use cash flow from operations, proceeds from
disposition of equipment, and cash currently held to satisfy its operating
requirements, maintain working capital reserves, and pay cash distributions to
the unitholders.
The General Partner believes that due to the current state of the economy,
liquidating Partnership equipment at this time is not in the best interest of
the partners. The General Partner will continue to monitor the economic
conditions to determine the best time to liquidate the Partnership's equipment.
(IV) FORWARD-LOOKING INFORMATION
Except for historical information contained herein, the discussion in this Form
10-Q contains forward-looking statements that involve risks and uncertainties,
such as statements of the Partnership's plans, objectives, expectations, and
intentions. The cautionary statements made in this Form 10-Q should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-Q. The Partnership's actual results could differ materially from
those discussed here.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposure is that of currency devaluation
risk. During the nine months ended September 30, 2001, 11% of the Partnership's
total lease revenues came from non-United States domiciled lessees. Most of the
leases require payment in United States (U.S.) currency. If these lessee's
currency devalues against the U.S. dollar, the lessees could encounter
difficulty in making the U.S. dollar denominated lease payments.
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
Report dated September 5, 2001 announcing the engagement of
Deloitte & Touche LLP as the Partnership's auditors and the
dismissal of KPMG, LLP.
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 8, 2001 By: /s/ Stephen M. Bess
---------------------------------
Stephen M. Bess
President and
Current Chief Accounting Officer