Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999.
[ ] 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.)
ONE MARKET, STEUART STREET TOWER
SUITE 800, SAN FRANCISCO, CA 94105-1301
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (415) 974-1399
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
Aggregate market value of voting stock: N/A
Indicate the number of units outstanding of each of the issuer's classes of
depositary units, as of the latest practicable date:
Class Outstanding at March 6, 2000
----- ----------------------------
Limited partnership depositary units: 7,381,805
General Partnership units: 1
An index of exhibits filed with this Form 10-K is located at page 24.
Total number of pages in this report: 43.
PART I
ITEM 1. BUSINESS
(A) Background
On April 2, 1987, PLM Financial Services, Inc. (FSI or the General Partner), a
wholly-owned subsidiary of PLM International, Inc. (PLM International or PLM),
filed a Registration Statement on Form S-1 with the Securities and Exchange
Commission with respect to a proposed offering of 7,500,000 depositary units
(the units) in PLM Equipment Growth Fund II, a California limited partnership
(the Partnership, the Registrant, or EGF II). The Partnership's offering became
effective on June 5, 1987. FSI, as General Partner, owns a 5% interest in the
Partnership. The Partnership engages in the business of investing in a
diversified equipment portfolio consisting primarily of used, long-lived,
low-obsolescence capital equipment that is easily transportable by and among
prospective users.
The Partnership's primary objectives are:
(1) to maintain a diversified portfolio of long-lived, low-obsolescence,
high residual-value equipment which was purchased with the net proceeds of the
initial partnership offering, supplemented by debt financing, and surplus
operating cash during the investment phase of the Partnership. All transactions
of over $1.0 million must be approved by the PLM International Credit Review
Committee (the Committee), which is made up of members of PLM International
Senior Management. In determining a lessee's creditworthiness, the Committee
will consider, among other factors, its financial statements, internal and
external credit ratings, and letters of credit;
(2) to generate sufficient net operating cash flow from lease operations to
meet liquidity requirements and to generate cash distributions to the limited
partners until such time as the General Partner commences the orderly
liquidation of the Partnership assets or unless the Partnership is terminated
earlier upon sale of all Partnership property or by certain other events;
(3) to selectively sell equipment when the General Partner believes that,
due to market conditions, market prices for equipment exceed inherent equipment
values or that expected future benefits from continued ownership of a particular
asset will have an adverse affect on the Partnership. As the Partnership is in
the liquidation phase, proceeds from these sales, together with excess net
operating cash flow from operations (net cash provided by operating activities
plus distributions from unconsolidated special-purpose entities (USPEs)), less
reasonable reserves are used to pay distributions to the partners;
(4) to preserve and protect the value of the portfolio through quality
management, maintaining the portfolio's diversity and constantly monitoring
equipment markets.
The offering of the Units of the Partnership closed on March 18, 1988. The
General Partner contributed $100 for its 5% general partner interest in the
Partnership. On November 20, 1990, the units of the Partnership began trading on
the American Stock Exchange (AMEX). Thereupon each unitholder received a
depositary receipt representing ownership of the number of units owned by such
unitholder. The General Partner delisted the Partnership's units from the AMEX
on April 8, 1996. The last day for trading on the AMEX was March 22, 1996.
As of December 31, 1999, there were 7,381,805 depositary units outstanding.
On January 1, 1999, the Partnership entered its liquidation phase and in
accordance with the limited partnership agreement, the General Partner intends
to commence an orderly liquidation of the Partnership's assets. The liquidation
phase will end on December 31, 2006, unless the Partnership is terminated
earlier upon sale of all of the equipment or by certain other events.
Table 1, below, lists the equipment and the cost of equipment in the
Partnership's portfolio, and the cost of an investment in an unconsolidated
special-purpose entity, as of December 31, 1999 (in thousands of dollars):
TABLE 1
Units Type Manufacturer Cost
- ----------------------------------------------------------------------------------------------------------------------
Owned equipment held for operating leases:
458 Box railcars Various $ 7,777
193 Mill gondolas railcars Various 4,459
112 Pressurized tank railcars Various 3,160
24 Non-Pressurized tank railcars Various 429
27 Covered hopper railcars ACF Industries 424
620 Dry piggyback trailers Various 9,541
8 Refrigerated trailers Various 264
66 Dry trailers Fruehauf 801
257 Refrigerated marine containers Various 5,632
-------------
Total owned equipment held for operating lease $ 32,487 1
=============
Investment in unconsolidated special-purpose entity:
50% 737-200 Stage II commercial aircraft Boeing $ 8,046 1,2
==============
1 Includes equipment and investments purchased with the proceeds from
capital contributions, undistributed cash flow from operations, and Partnership
borrowings. Includes costs capitalized and equipment acquisition fees paid to
PLM Transportation Equipment Corporation (TEC), a wholly-owned subsidiary of
FSI, subsequent to the date of acquisition. All equipment was used equipment at
the time of purchase,
2 Jointly owned: EGF II (50%) and an affiliated program.
The equipment is generally leased under operating leases with terms of one to
six years. The Partnership's marine containers are leased to operators of
utilization-type leasing pools that include equipment owned by unaffiliated
parties. In such instances, revenues received by the Partnership consist of a
specified percentage of revenues generated by leasing the pooled equipment to
sublessees, after deducting certain direct operating expenses of the pooled
equipment. Rents for railcars are based on mileage traveled or a fixed rate;
rents for all other equipment are based on fixed rates.
As of December 31, 1999, approximately 11% of the of the Partnership's trailer
equipment was in rental facilities operated by PLM Rental, Inc., an affiliate of
the General Partner, doing business as PLM Trailer Leasing. The remaining
trailer fleet operated in the short-line railroad system. Rents are reported as
revenue in accordance with Financial Accounting Standards Board Statement No. 13
"Accounting for Leases". Direct expenses associated with the equipment are
charged directly to the Partnership. An allocation of other indirect expenses of
the rental yard operations is charged to the Partnership monthly.
The lessees of the equipment include but are not limited to: Cronos, Union
Pacific Railroad Company, Canadian Pacific Railway Company, and Elgin, Jolieit &
Eastern Railway.
(B) Management of Partnership Equipment
The Partnership has entered into an equipment management agreement with PLM
Investment Management, Inc. (IMI), a wholly-owned subsidiary of FSI, for the
management of the Partnership's equipment. The Partnership's management
agreement with IMI is to co-terminate with the dissolution of the Partnership,
unless the limited partners vote to terminate the agreement prior to that date
or at the discretion of the General Partner. IMI has agreed to perform all
services necessary to manage the equipment on behalf of the Partnership and to
perform or contract for the performance of all obligations of the lessors under
the Partnership's leases. In consideration for its services and pursuant to the
partnership agreement, IMI is entitled to a monthly management fee (see Notes 1
and 2 to the audited financial statements).
(C) Competition
(1) Operating Leases versus Full Payout Leases
Generally, the equipment owned or invested in by the Partnership is leased out
on an operating lease basis wherein the rents received during the initial
noncancelable term of the lease are insufficient to recover the Partnership's
purchase price of the equipment. The short- to mid-term nature of operating
leases generally commands a higher rental rate than longer-term, full payout
leases and offers lessees relative flexibility in their equipment commitment. In
addition, the rental obligation under an operating lease need not be capitalized
on the lessee's balance sheet.
The Partnership encounters considerable competition from lessors that utilize
full payout leases on new equipment, i.e. leases that have terms equal to the
expected economic life of the equipment. While some lessees prefer the
flexibility offered by a shorter-term operating lease, other lessees prefer the
rate advantages possible with a full payout lease. Competitors may write full
payout leases at considerably lower rates and for longer terms than the
Partnership offers, or larger competitors with a lower cost of capital may offer
operating leases at lower rates, which may put the Partnership at a competitive
disadvantage.
(2) Manufacturers and Equipment Lessors
The Partnership competes with equipment manufacturers who offer operating leases
and full payout leases. Manufacturers may provide ancillary services that the
Partnership cannot offer, such as specialized maintenance services (including
possible substitution of equipment), training, warranty services, and trade-in
privileges.
The Partnership also competes with many equipment lessors, including ACF
Industries, Inc. (Shippers Car Line Division), GATX, General Electric Railcar
Services Corporation, General Electric Capital Aviation Services Corporation,
and other investment programs that lease the same types of equipment.
(D) Demand
The Partnership currently operates in four primary operating 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. Except for the aircraft which may be leased to a
passenger air carrier, the Partnership's equipment is used to transport
materials and commodities, rather than people.
The following section describes the international and national markets in which
the Partnership's capital equipment operates:
(1) Railcars
(a) Box Railcars
Boxcars are used to primarily transport paper and paper products. Carloadings of
forest products decreased 2.0% in the United States and rose 4.3% in Canada
during 1999, compared to 1998. However, during 1999, prospects for the forest
products industry showed signs of improvement, largely due to macroeconomic
factors, such as the beginning of an economic recovery in Asia, some weakening
of the United States (US) dollar, and a continued strong domestic economy. The
outlook has also improved due to industry-specific factors, most notably a major
slowdown in capacity additions.
The Partnership's boxcars continued to operate on long-term leases during 1999.
(b) Mill Gondolas Railcars
Mill gondola railcars are used typically to transport scrap steel for recycling
from steel processors to small steel mills called minimills. Demand for steel is
cyclical and moves in tandem with the growth or contraction of the overall
economy. Within the United States, 1999 carloadings for the commodity group that
includes scrap steel increased 1.0% over 1998 volumes.
The General Partner continues to seek a lessee for the Partnership's mill
gondola railcars, which have remained off lease since May of 1999. Demand for
these particular mill gondolas has been weak, as they are older, low cubic
capacity, and low-sided railcars.
(c) Pressurized Tank Railcars
Pressurized tank cars are used to transport primarily liquefied petroleum gas
(natural gas) and anhydrous ammonia (fertilizer). The major US markets for
natural gas are industrial applications (40% of estimated demand in 1998),
residential use (21%), electrical generation (15%), and commercial applications
(14%). Within the fertilizer industry, demand is a function of several factors,
including the level of grain prices, the status of government farm subsidy
programs, amount of farming acreage and mix of crops planted, weather patterns,
farming practices, and the value of the US dollar. Population growth and dietary
trends also play an indirect role.
On an industry-wide basis, North American carloadings of the commodity group
that includes petroleum and chemicals increased 2.5% in 1999, compared to 1998.
Correspondingly, demand for pressurized tank cars remained solid during 1999,
with utilization of this type of railcar within the Partnership remaining above
98%. While renewals of existing leases continue at similar rates, some cars have
been renewed for "winter only" terms of approximately six months. As a result,
it is anticipated that there will be more pressurized tank cars than usual
coming up for renewal in the spring.
(d) General Purpose (Nonpressurized) Tank Railcars
These cars, which are used to transport bulk liquid commodities and chemicals
not requiring pressurization, such as certain petroleum products, liquefied
asphalt, lubricating and vegetable oils, molten sulfur, and corn syrup,
continued to be in high demand during 1999. The overall health of the market for
these types of commodities is closely tied to both the US and global economies,
as reflected in movements in the Gross Domestic Product, personal consumption
expenditures, retail sales, and currency exchange rates. The manufacturing,
automobile, and housing sectors are the largest consumers of chemicals. Within
North America, 1999 carloadings of the commodity group that includes chemicals
and petroleum products rose 2.5% over 1998 levels. Utilization of the
Partnership's nonpressurized tank cars was above 98% again during 1999.
(e) Covered Hopper (Grain) Railcars
Demand for covered hopper cars, which are specifically designed to service the
agricultural industry, continued to experience weakness during 1999. The US
agribusiness industry serves a domestic market that is relatively mature, the
future growth of which is expected to be consistent but modest. Most domestic
grain rail traffic moves to food processors, poultry breeders, and feed lots.
The more volatile export business, which accounts for approximately 30% of total
grain shipments, serves emerging and developing nations. In these countries,
demand for protein-rich foods is growing more rapidly than in the United States,
due to higher population growth, a rapid pace of industrialization, and rising
disposable income.
Within the United States, 1999 carloadings of agricultural products increased
4.3%, while Canadian carloadings of these products fell 3.4%, resulting in an
overall increase within North America of only 2.8% compared to 1998. Since the
combined North American shipments for 1998 had decreased 7.7% over the previous
year, the 1999 volume, while representing a slight increase, is still below 1997
levels. Another factor contributing to softness in the covered hopper car market
has been the large number of new cars built in the last few years. Production of
new railcars of all types is estimated to have reached 57,685 cars during 1999,
with covered hopper cars representing 19,845, or one-third, of this total. For
those covered hopper cars whose leases expired in 1999, both industry-wide and
within the Partnership, the combination of a lack of strong demand and an excess
supply of cars resulted in many of these expiring leases being renewed at
considerably lower rates.
(2) Trailers
(a) Intermodal (Piggyback) Trailers
Intermodal (piggyback) trailers are used to transport a variety of goods either
by truck or by rail. Over the past decade, intermodal trailers have been
gradually displaced by domestic containers as the preferred method of transport
for such goods. During 1999, demand for intermodal trailers was more volatile
than usual. Slow demand occurred over the first half of the year due to customer
concerns over rail service problems associated with mergers in the rail
industry, however, demand picked up significantly over the second half of the
year due to both a resolution of these service problems and the continued
strength of the US economy. Due to rise in demand which occurred over the latter
half of 1999, overall, activity within the intermodal trailer market declined
less than expected for the year, as total intermodal trailer shipments decreased
by only approximately 1.8% compared to the prior year. Average utilization of
the entire intermodal fleet rose from 73% in 1998 to 77% in 1999, primarily due
to demand exceeding available supply of intermodal trailers during the second
part of the year.
The General Partner stepped up its marketing program for the Partnership's
intermodal trailers during 1999. These efforts resulted in average utilization
for the Partnership's intermodal trailers of approximately 82% for the year, up
2% compared to 1998 levels.
Although the trend towards using domestic containers instead of intermodal
trailers is expected to continue in the future, overall intermodal trailer
shipments are forecast to decline by only 2% to 3% in 2000, compared to the
prior year, due to the anticipated continued strength of the overall economy. As
such, the nationwide supply of intermodal trailers is expected to remain
essentially in balance with demand for 2000. For the Partnership's intermodal
fleet, the General Partner will continue to seek to expand its customer base
while minimizing trailer downtime at repair shops and terminals.
(b) Refrigerated Trailers
The temperature-controlled trailer market continued to expand during 1999,
although not as quickly as in 1998 when the market experienced very strong
growth. The leveling off in 1999 occurred as equipment users began to absorb the
increases in supply created over the prior two years. Refrigerated trailer users
have been actively retiring their older units and consolidating their fleets in
response to improved refrigerated trailer technology. Concurrently, there is a
backlog of six to nine months on orders for new equipment.
As a result of these changes in the refrigerated trailer market, it is
anticipated that trucking companies and shippers will utilize short-term trailer
leases more frequently to supplement their existing fleets. Such a trend should
benefit the Partnership, whose trailers are typically leased on a short-term
basis.
(c) Dry Trailers
The US dry trailer market continued its recovery during 1999, as the strong
domestic economy resulted in heavy freight volumes. With unemployment low,
consumer confidence high, and industrial production sound, the outlook for
leasing this type of trailer remains positive, particularly as the equipment
surpluses of recent years are being absorbed by the buoyant market. In addition
to high freight volumes, improvements in inventory turnover and tighter
turnaround times have lead to a stronger overall trucking industry and increased
equipment demand.
(3) Marine Containers
The marine container leasing market started 1999 with industry-wide utilization
in the mid 70% range, down somewhat from the beginning of 1998. The market
strengthened throughout the year such that most container leasing companies
reported utilization of 80% by the end of 1999. Overall, industry-wide
utilization for marine containers was increasing during 1999. The Partnership
owns older marine containers and thus, did not contribute to the overall
increase in the industry-wide utilization. The General Partner plans to dispose
of these older refrigerated marine containers. These marine containers are
currently off lease.
Offsetting this favorable trend was a continuation of historically low
acquisition prices for new containers manufactured in the Far East,
predominantly China. These low prices put pressure on fleetwide per diem leasing
rates.
Industry consolidation continued in 1999 as the parent of one of the world's top
ten container lessors finalized the outsourcing of the management of its
container fleet to a competitor. However, the General Partner believes that such
consolidation is a positive trend for the overall container leasing industry,
and ultimately will lead to higher industry-wide utilization and increased per
diem rates.
(4) Commercial Aircraft
After experiencing relatively robust growth over the prior four years, demand
for commercial aircraft softened somewhat in 1999. Boeing and Airbus, the two
primary manufacturers of new commercial aircraft, saw a decrease in their volume
of orders, which totaled 368 and 417 during 1999, compared to 656 and 556 in
1998. The slowdown in aircraft orders can be partially attributed to the full
implementation of US Stage III environmental restrictions, which became fully
effective on December 31, 1999. Since these restrictions effectively prohibit
the operation of noncompliant aircraft in the United States after 1999, carriers
operating within or into the United States either replaced or modified all of
their noncompliant aircraft before the end of the year. The continued weakness
of the Asian economy has also served to slow the volume of new aircraft orders.
However, with the Asian economy now showing signs of recovery, air carriers in
this region are beginning to resume their fleet building efforts.
Demand for, and values of, used commercial aircraft have been adversely affected
by the Stage III environmental restrictions and an oversupply of older aircraft
as manufacturers delivered more new aircraft that the overall market required.
Boeing predicts that the worldwide fleet of jet-powered commercial aircraft will
increase from approximately 12,600 airplanes as of the end of 1998 to about
13,700 aircraft by the end of 2003, an average increase of 220 units per year.
However, actual deliveries for the first two years of this period, 1998 and
1999, already averaged 839 units annually. Although some of the resultant
surplus used aircraft have been retired, the net effect has been an overall
increase in the number of used aircraft available. This has resulted in a
decrease in both market prices and lease rates for used aircraft. The weakness
in the used commercial aircraft market may be mitigated in the future as
manufacturers bring their new production more in line with demand and given the
anticipated continued growth in air traffic. Worldwide, demand for air passenger
services is expected to increase at about 5% annually and freight services at
about 6% per year, for the foreseeable future.
This Partnership owns a 50% interest in a Stage II aircraft, which has been
impacted by the soft market conditions described above. The General Partner has
been unsuccessfully trying to sell this aircraft.
(E) Government Regulations
The use, maintenance, and ownership of equipment are regulated by federal,
state, local, or foreign government authorities. Such regulations may impose
restrictions and financial burdens on the Partnership's ownership and operation
of equipment. Changes in government regulations, industry standards, or
deregulation may also affect the ownership, operation, and resale of the
equipment. Substantial portions of the Partnership's equipment portfolio are
either registered or operated internationally. Such equipment may be subject to
adverse political, government, or legal actions, including the risk of
expropriation or loss arising from hostilities. Certain of the Partnership's
equipment is subject to extensive safety and operating regulations, which may
require its removal from service or extensive modifications to meet these
regulations, at considerable cost to the Partnership. Such regulations include
but are not limited to:
(1)the U.S. Department of Transportation's Aircraft Capacity Act of 1990,
which limits or eliminates the operation of commercial aircraft in the United
States that do not meet certain noise, aging, and corrosion criteria. In
addition, under U.S. Federal Aviation Regulations, after December 31, 1999,
no person shall operate an aircraft to or from any airport in the contiguous
United States unless that airplane has been shown to comply with Stage III
noise levels. The Partnership's remaining aircraft is a Stage II aircraft
that does not meet Stage III requirements. As of December 31, 1999, this
aircraft is located overseas where it is expected to be sold. This aircraft
is currently off-lease and is scheduled to be sold in the year 2000.
(2) the Montreal Protocol on Substances that Deplete the Ozone Layer and
the U.S. Clean Air Act Amendments of 1990, (which call for the control and
eventual replacement of substances that have been found to cause or
contribute significantly to harmful effects to the stratospheric ozone layer
and that are used extensively as refrigerants in refrigerated marine cargo
containers and refrigerated trailers).
(3) the Federal Railroad Administration has mandated that effective July
1, 2000, all jacketed and non-jacketed tank railcars must be re-qualified to
insure tank shell integrity. Tank shell thickness, weld seams, and weld
attachments must be inspected and repaired if necessary to re-qualify a tank
railcar for service. The average cost of this inspection is $1,800 for
non-jacketed tank railcars and $3,600 for jacketed tank railcars, not
including any necessary repairs. This inspection is to be performed at the
next scheduled tank test.
As of December 31, 1999, the Partnership was in compliance with the above
government regulations. Typically, costs related to extensive equipment
modifications to meet government regulations are passed on to the lessee of that
equipment.
ITEM 2. PROPERTIES
The Partnership neither owns nor leases any properties other than the equipment
it has either purchased or interests in entities which own equipment. As of
December 31, 1999, the Partnership owned a portfolio of transportation and
related equipment and an investment in equipment owned by an unconsolidated
special-purpose entity as described in Item I, Table 1. The Partnership acquired
equipment with the proceeds of the Partnership offering of $150.0 million,
proceeds from debt financing of $35.0 million and by reinvesting a portion of
its operating cash flow in additional equipment.
The Partnership maintains its principal office at One Market, Steuart Street
Tower, Suite 800, San Francisco, California 94105-1301. All office facilities
are provided by FSI without reimbursement by the Partnership.
ITEM 3. LEGAL PROCEEDINGS
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 counter-claims 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 vigorously defend against such counterclaims. The General
Partner believes an unfavorable outcome from the counterclaims is remote.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Partnership's limited partners during
the fourth quarter of its fiscal year ended December 31, 1999.
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED DEPOSITARY UNIT MATTERS
As of March 6, 2000, there were 7,381,805 depositary units outstanding. There
are 6,096 depositary unitholders of record as of the date of this report.
There are several secondary markets that will facilitate sales and purchases of
depositary units. Secondary markets are characterized as having few buyers for
limited partnership interests and, therefore, are generally viewed as
inefficient vehicles for the sale of depositary units. Presently, there is no
public market for the units and none is likely to develop.
To prevent the units from being considered publicly traded and thereby to avoid
taxation of the Partnership as an association treated as a corporation under the
Internal Revenue Code, the limited partnership units will not be transferable
without the consent of the General Partner, which may be withheld in its
absolute discretion. The General Partner intends to monitor transfers of limited
partnership units in an effort to ensure that they do not exceed the percentage
or number permitted by certain safe harbors promulgated by the Internal Revenue
Service. A transfer may be prohibited if the intended transferee is not an
United States citizen or if the transfer would cause any portion of the units of
a "Qualified Plan" as defined by the Employee Retirement Income Security Act of
1974 and Individual Retirement Accounts to exceed the allowable limit.
On January 10, 2000, the General Partner for the Partnership announced that it
has begun recognizing transfers involving trading of units in 2000. The
Partnership is listed on the OTC Bulletin Board under the symbols GFYPZ.
In making the announcement, the General Partner noted that, as in previous
years, it will continue to monitor the volume of such trades to ensure that the
Partnership remain in compliance with Internal Revenue Service (IRS) Notice
88-75 and IRS Code Section 7704. These IRS regulations contain safe harbor
provisions stipulating the maximum number of partnership units that can be
traded during a calendar year in order for a partnership not to be deemed a
publicly traded partnership for income tax purposes.
Should the Partnership approach the annual safe harbor limitation later on in
2000, the General Partner will, at that time, cease to recognize any further
transfers involving trading of Partnership units. Transfers specifically
excluded from the safe harbor limitations, referred to in the regulations as
"transfers not involving trading," which include transfers at death, transfers
between family members, and transfers involving distributions from a qualified
retirement plan, will continue to be recognized by the General Partner
throughout the year.
Pursuant to the terms of the amended limited partnership agreement, the General
Partner is generally entitled to a 5% interest in the profits, losses, and cash
distributions of the Partnership. Cash Distributions are allocated 95% to the
limited partners and 5% to the General Partner. Net income is allocated to the
General Partner to the extent necessary to cause the General Partner's capital
account to equal zero. Such allocation of income may not cumulatively exceed
five ninety-fifths of the aggregate of the capital contributions made by the
limited partners and the reinvestment cash available for distribution.
ITEM 6. SELECTED FINANCIAL DATA
Table 2, below, lists selected financial data for the Partnership:
TABLE 2
For the Years Ended December 31,
(In thousands of dollars, except weighted-average depositary unit amounts)
1999 1998 1997 1996 1995
----------------------------------------------------------------------------------------------------------------
Operating results:
Total revenues $ 6,367 $ 13,567 $ 12,748 $ 14,819 $ 18,983
Net gain on disposition of equipment 328 5,990 1,922 2,085 1,485
Loss on revaluation of equipment -- -- -- -- (667)
Equity in net income (loss) of
unconsolidated special-purpose
entities (448) (1,484) (519) 6,267 --
Net income 934 6,031 2,695 8,186 937
At year-end:
Total assets $ 8,858 $ 12,474 $ 18,631 $ 33,595 $ 48,957
Total liabilities 1,202 1,207 4,906 16,349 30,761
Notes payable -- -- 2,500 13,000 27,000
Cash distribution $ 4,545 $ 8,489 $ 6,216 $ 8,957 $ 12,549
Cash distribution representing a
return of capital to the limited
partners $ 3,611 $ 2,458 $ 3,709 $ 1,045 $ 11,847
Per weighted-average depositary unit:
Net income $ 0.101$ 0.761$ 0.301 $ 1.011 $ 0.011
Cash distribution $ 0.58 $ 1.09 $ 0.80 $ 1.15 $ 1.60
Cash distribution representing a
return of capital to the limited
partners $ 0.49 $ 0.33 $ 0.50 $ 0.14 $ 1.59
1 After an increase of income of $180 ($0.02 per weighted-average
depositary unit) in 1999, representing allocations to the General Partner
resulting from an amendment to the partnership agreement (see Note 1 to the
financial statements). After reduction of income of $124 ($0.02 per weighted-
average depositary unit) in 1998, $364 ($0.05 per weighted-average depositary
unit) in 1997, $313 ($0.04 per weighted-average depositary unit) in 1996, and
$815 ($0.11 per weighted-average depositary unit) in 1995, representing special
allocations to the General Partner.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(A) Introduction
Management's discussion and analysis of financial condition and results of
operations relates to the financial statements of PLM Equipment Growth Fund II
(the Partnership). The following discussion and analysis of operations focuses
on the performance of the Partnership's equipment in the various segments in
which it operates and its effect on the Partnership's overall financial
condition.
(B) Results of Operations -- Factors Affecting Performance
(1) Re-leasing Activity and Repricing Exposure to Current Economic Conditions
The exposure of the Partnership's equipment portfolio to repricing risk occurs
whenever the leases for the equipment expire or are otherwise terminated and the
equipment must be remarketed. Major factors influencing the current market rate
for the Partnership's equipment include, but are not limited to, supply and
demand for similar or comparable types of transport capacity, desirability of
the equipment in the leasing market, market conditions for the particular
industry segment in which the equipment is to be leased, overall economic
conditions, and various regulations concerning the use of the equipment.
Equipment that is idle or out of service between the expiration of one lease and
the assumption of a subsequent lease can result in a reduction of contribution
to the Partnership. The Partnership experienced re-leasing or repricing activity
in 1999 in its railcar, trailer, marine container and aircraft portfolios.
(a) Railcars: 84 of the Partnership's railcars came off lease during 1999
and are currently being marketed for re-lease. The Partnership's remaining
railcars remained on-lease throughout the year. The relatively short duration of
most leases exposes the railcars to considerable re-leasing activity. The
Partnership's railcar lease revenue declined approximately $0.3 million from
1998 to 1999 due to the sale and disposition of railcars during 1998 and 1999,
and decreased approximately $0.4 million due to the group of railcars which came
off lease during 1999.
(b) Trailers: The Partnership's trailer portfolio operates in short-term
rental facilities or with short-line railroad systems. The relatively short
duration of most leases in these operations exposes the trailers to considerable
re-leasing activity. The Partnership's lease revenue decreased approximately
$0.8 million from 1998 to 1999 primarily due to the sale and disposition of
trailers during 1998 and 1999, which was offset by an increase of approximately
$0.2 million from 1998 to 1999 due to higher utilization for the remaining
fleet.
(c) Marine containers: 132 of the Partnership's marine containers came
off lease during 1999 and are currently being marketed for sale. The
Partnership's remaining marine container portfolio operates in utilization-based
leasing pools and, as such, is exposed to considerable repricing activity. The
Partnership's marine container contributions declined approximately $0.1 million
from 1998 to 1999 primarily due to marine containers coming off lease during
1999.
(d) Aircraft: The Partnership's 50% investment in a commercial aircraft was
off-lease throughout 1998 and 1999. This aircraft is currently being marketed
for sale.
(2) Equipment Liquidations and Nonperforming Lessees
Liquidation of Partnership equipment and investment in unconsolidated
special-purpose entities (USPEs) represents a reduction in the size of the
equipment portfolio and may result in a reduction of contribution to the
Partnership. Lessees not performing under the terms of their leases, either by
not paying rent, not maintaining or operating the equipment in accordance with
the conditions of the leases, or other possible departures from the leases, can
result not only in reductions in contribution, but also may require the
Partnership to assume additional costs to protect its interests under the
leases, such as repossession or legal fees. The Partnership experienced the
following in 1999:
(a) Liquidations: During the year ended December 31, 1999, the Partnership
sold or disposed of marine containers, trailers, and railcars, with an aggregate
net book value of $0.4 million, for proceeds of $0.7 million.
(b) Nonperforming Lessees: In 1996, the General Partner repossessed an
aircraft owned by a trust in which the Partnership has a 50% interest, due to
the lessee's inability to pay for outstanding receivables. This aircraft
remained off lease throughout 1997, 1998 and 1999 and is currently being
marketed for sale.
(3) Equipment Valuation and Write-downs
In accordance with Financial Accounting Standards Board's Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" the General Partner reviews the carrying value of the
Partnership's equipment portfolio at least quarterly and whenever circumstances
indicate that the carrying value of an asset may not be recoverable in relation
to expected future market conditions for the purpose of assessing the
recoverability of the recorded amounts. If projected undiscounted future lease
revenues plus residual values are less than the carrying value of the equipment,
a loss on revaluation is recorded. No reductions to the equipment carrying
values were required for the years ended December 31, 1999, 1998, or 1997.
As of December 31, 1999, the General Partner estimated the current fair market
value of the Partnership's equipment portfolio, including interest in the
equipment owned by a USPE, to be $21.1 million. This estimate is based on recent
market transactions for equipment similar to the Partnership's equipment
portfolio and the Partnership's interest in equipment owned by the USPE.
Ultimate realization of fair market value by the Partnership may differ
substantially from the estimate due to specific market conditions, technological
obsolescence, and government regulations, among other factors that the General
Partner cannot accurately predict.
(C) 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 limited partnership agreement. As of December 31, 1999, the
Partnership had no outstanding indebtedness. The Partnership relies on operating
cash flow to meet its operating obligations and make cash distributions to the
limited partners.
For the year ended December 31, 1999, the Partnership generated $2.8 million in
operating cash (net cash provided by operating activities less investments in a
USPE to fund its operations) to meet its operating obligations, but also used
undistributed available cash from prior periods and asset sale proceeds of
approximately $1.7 million to maintain the level of distributions (total in 1999
of $4.5 million) to the partners.
During the year ended December 31, 1999, the Partnership sold or disposed of
marine containers, trailers, and railcars, with an aggregate net book value of
$0.4 million, for proceeds of $0.7 million.
The General Partner has not planned any expenditures, nor is it aware of any
contingencies that would cause it to require any additional capital to that
mentioned above.
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 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
Partnership after final disposal of assets and settlement of liabilities, the
amounts cannot be accurately determined prior to actual disposal of the
equipment.
(D) Results of Operations -- Year-to-Year Detailed Comparison
(1) Comparison of the Partnership's Operating Results for the Years Ended
December 31, 1999 and 1998
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance and
asset-specific insurance expenses) on owned equipment decreased during the year
ended December 31, 1999, when compared to the same period of 1998. Gains or
losses from the sale of equipment and certain expenses such as depreciation and
amortization and general and administrative expenses relating to the operating
segments (see Note 5 to the audited financial statements), are not included in
the owned equipment operation discussion because they are more indirect in
nature, not a result of operations but more 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 Years Ended
December 31,
1999 1998
----------------------------
Railcars $ 2,571 2,991
Trailers 1,540 2,074
Marine containers 160 246
Aircraft -- 47
Railcars: Railcar lease revenues and direct expenses were $3.6 million and $1.0
million, respectively, for 1999, compared to $4.2 million and $1.2 million,
respectively, during 1998. Lease revenue decreased approximately $0.4 million in
1999, compared to the same period of 1998, due to a group of railcars coming off
lease in 1999. In addition, lease revenue decreased approximately $0.3 million
due to the sale of railcars in 1999 and 1998. The decrease in lease revenue was
offset, in part, by an approximately $0.1 million increase in lease revenue due
to higher re-lease rates earned in 1999 compared to the same period in 1998.
Direct expenses decreased due to higher running repairs required on certain
railcars in 1998, which were not needed during the same period in 1999.
Trailers: Trailer lease revenues and direct expenses were $2.2 million and $0.7
million, respectively, for 1999, compared to $2.8 million and $0.7 million,
respectively, during 1998. Lease revenue decreased approximately $0.8 million
from 1998 to 1999 primarily due to the sale and disposition of trailers during
1998 and 1999, which was offset by an increase of approximately $0.2 million
from 1998 to 1999 due to higher utilization for the remaining fleet. Direct
expenses increased slightly due to higher marketing expenses in 1999 compared to
1998.
Marine containers: Marine container lease revenues was $0.2 million for 1999 and
1998. The decrease in lease revenue was primarily due to a group of marine
containers coming off lease during 1999.
Aircraft: Aircraft lease revenues and direct expenses were $0.1 million and
$36,000, respectively, for the year ended December 31, 1998. The Partnership's
remaining wholly-owned aircraft was sold in 1998.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $3.3 million for the year ended December 31, 1999,
decreased from $4.0 million for the same period of 1998. Significant variances
are explained as follows:
(i) A $0.5 million decrease in depreciation expense from 1998 levels
reflects the effect of asset sales in 1999 and 1998.
(ii) A $0.2 million decrease in general and administrative expenses from
1998 levels due to reduced office expenses and professional services required by
the Partnership, resulting from the reduced equipment portfolio.
(iii) A $0.1 million decrease in management fees to affiliates reflects the
lower levels of lease revenues in the year ended December 31, 1999, compared to
the same period in 1998.
(iv)The $0.1 million increase in bad debt expense was due to the recovery
of an outstanding receivable in the year ended December 31, 1998, that had
previously been reserved for as a bad debt. A similar recovery did not occur in
1999.
(c) Interest and Other Income
Interest and other income decreased $0.1 million in interest income due to lower
average cash balances in 1999 compared to 1998.
(d) Net Gain on Disposition of Owned Equipment
Net gain on disposition of equipment for the year ended December 31, 1999
totaled $0.3 million, which resulted from the sale or disposal of marine
containers, trailers, and railcars, with an aggregate net book value of $0.4
million, for aggregate proceeds of $0.7 million. For the year ended December 31,
1998, the $6.0 million net gain on disposition of equipment resulted from the
sale or disposal of aircraft, marine containers, trailers, and railcars, with an
aggregate net book value of $1.9 million, for aggregate proceeds of $7.9
million.
(e) Equity in Net Loss of USPEs
Equity in net loss of unconsolidated special-purpose entities represents the
Partnership's share of the net loss generated from the operation of
jointly-owned assets accounted for under the equity method (see Note 4 to the
financial statements).
As of December 31, 1999, the Partnership owned a 50% interest in an entity which
owns a commercial aircraft that was off lease during the years ended December
31, 1999 and 1998. The Partnership's share of revenues and expenses were $0.1
million and $0.5 million, respectively, for 1999 compared to expenses of $1.5
million, for 1998. Revenues increased $0.1 million in 1999 due to a deposit
received for the proposed sale of the Partnership's 50% interest in an entity
which owns a commercial aircraft, was defaulted on and the Partnership
recognized it as income. A similar event did not occur in 1998. Expenses
decreased due to repairs required during 1998, which were not required for the
same period in 1999. During the year ended December 31, 1998, the General
Partner sold for approximately its book value the Partnership's 23% investment
in an entity that owned an aircraft.
(f) Net Income
As a result of the foregoing, the Partnership's net income for the period ended
December 31, 1999 was $0.9 million, compared to net income of $6.0 million
during the same period in 1998. The Partnership's ability to operate and
liquidate assets, secure leases, and re-lease those assets whose leases expire
during the life of the Partnership is subject to many factors, and the
Partnership's performance in the year ended December 31, 1999 is not necessarily
indicative of future periods. In the year ended December 31, 1999, the
Partnership distributed $4.3 million to the limited partners, or $0.58 per
weighted-average depositary unit.
(2) Comparison of the Partnership's Operating Results for the Years Ended
December 31, 1998 and 1997
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance and
asset-specific insurance expenses) on owned equipment decreased during the year
ended December 31, 1998, when compared to the same period of 1997. Gains or
losses from the sale of equipment and certain expenses such as depreciation and
amortization and general and administrative expenses relating to the operating
segments (see Note 5 to the audited financial statements), are not included in
the owned equipment
operation discussion because they are more indirect in nature, not a result of
operations but more 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 Years Ended
December 31,
1998 1997
----------------------------
Railcars $ 2,991 $ 3,251
Trailers 2,074 2,787
Marine containers 246 666
Aircraft 47 1,848
Railcars: Railcar lease revenues and direct expenses were $4.2 million and $1.2
million, respectively, for 1998, compared to $4.5 million and $1.2 million,
respectively, during 1997. Lease revenues decreased due to the sale of railcars
in 1998 and 1997.
Trailers: Trailer lease revenues and direct expenses were $2.8 million and $0.7
million, respectively, for 1998, compared to $3.5 million and $0.7 million,
respectively, during 1997. The decrease in net contribution was primarily due to
the sale of trailers in 1998 and 1997. Although the number of trailers has been
declining, the Partnership incurred higher expenses for trailers operating in
the short-line railroad system in 1998 compared to 1997.
Marine containers: Marine container lease revenues were $0.2 million and $0.7
million for 1998 and 1997, respectively. The number of marine containers owned
by the Partnership has been declining over the past two years due to sales and
dispositions. The result of the declining fleet has been a decrease in marine
container revenue.
Aircraft: Aircraft lease revenues and direct expenses were $0.1 million and
$36,000, respectively, for 1998, compared to $1.9 million and $0.1 million,
respectively, for 1997. Aircraft contribution decreased in 1998, compared to
1997, due to the sale of the remaining aircraft fleet in 1998 and 1997.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $4.0 million for the year ended December 31, 1998,
decreased from $7.5 million for the same period of 1997. Significant variances
are explained as follows:
(i) A $2.0 million decrease in depreciation and amortization expenses from
1997 levels reflects the effect of asset sales in 1997 and 1998.
(ii) A $0.6 million decrease in interest expense was due to the repayment of
the Partnership's outstanding debt during 1998.
(iii) A $0.4 million decrease in bad debt expense was due to a $0.1 million
decrease in reserves for a certain lessee, resulting from the application of
security deposits against uncollected outstanding receivables, and a $0.3
million decrease in bad debt expense due to the General Partner's evaluation of
the collectibility of receivables due from certain lessees.
(iv) A $0.3 million decrease in administrative expenses from 1997 levels was
due to reduced office expenses and professional services required by the
Partnership, resulting from the reduced equipment portfolio.
(v) A $0.2 million decrease in management fees to affiliates reflects the
lower levels of lease revenues in the year ended December 31, 1998, compared to
the same period in 1997.
(c) Net Gain on Disposition of Owned Equipment
Net gain on disposition of equipment for the year ended December 31, 1998
totaled $6.0 million, which resulted from the sale or disposal of aircraft,
marine containers, trailers, and railcars, with an aggregate net book value of
$1.9 million, for aggregate proceeds of $7.9 million. For the year ended
December 31, 1997, the $1.9 million net gain on disposition of equipment
resulted from the sale or disposal of aircraft, marine containers, trailers, and
railcars, with an aggregate net book value of $3.2 million, for aggregate
proceeds of $5.1 million.
(d) Equity in Net Loss of USPEs
Net loss generated from the operation of jointly-owned assets accounted for
under the equity method is shown in the following table (in thousands of
dollars):
For the Years Ended
December 31,
1998 1997
-----------------------------
Aircraft $ (1,484 ) $ (519 )
Aircraft: As of December 31, 1998, the Partnership owned a 50% investment in an
entity that owns a commercial aircraft. Expenses were $1.5 million for 1998,
compared to revenues and expenses of $0.2 million and $0.7 million,
respectively, for 1997. The Partnership's share of revenues decreased in 1998
due to the sale of its 50% investment in an entity that owned an aircraft engine
in the third quarter of 1997. The Partnership's share of expenses increased due
to repairs required during 1998, which were not required for the same period in
1997. During the first quarter of 1998, the General Partner sold for
approximately its book value the Partnership's 23% investment in an entity that
owned an aircraft. The aircraft in the Partnership's remaining interest in an
entity which owns an aircraft was off-lease during 1997 and 1998.
(e) Net Income
As a result of the foregoing, the Partnership's net income for the period ended
December 31, 1998 was $6.0 million, compared to net income of $2.7 million
during the same period in 1997. The Partnership's ability to operate and
liquidate assets, secure leases, and re-lease those assets whose leases expire
during the life of the Partnership is subject to many factors, and the
Partnership's performance in the year ended December 31, 1998 is not necessarily
indicative of future periods. In the year ended December 31, 1998, the
Partnership distributed $8.1 million to the limited partners, or $1.09 per
weighted-average depositary unit.
(E) Geographic Information
Certain of the Partnership's equipment operates in international markets.
Although these operations expose the Partnership to certain currency, political,
credit, and economic risks, the General Partner believes these risks are minimal
or has implemented strategies to control the risks. Currency risks are at a
minimum because all invoicing, with the exception of a small number of railcars
operating in Canada, is conducted in U.S. dollars. Political risks are minimized
generally through the avoidance of operations in countries that do not have a
stable judicial system and established commercial business laws. Credit support
strategies for lessees range from letters of credit supported by U.S. banks to
cash deposits. Although these credit support mechanisms generally allow the
Partnership to maintain its lease yield, there are risks associated with
slow-to-respond judicial systems when legal remedies are required to secure
payment or repossess equipment. Economic risks are inherent in all international
markets and the General Partner strives to minimize this risk with market
analysis prior to committing equipment to a particular geographic area. Refer to
Note 6 to the financial statements for information on the revenues, net income,
and net book value of equipment in various geographic regions.
Revenues and net operating income by geographic region are impacted by the time
period the asset is owned and the useful life ascribed to the asset for
depreciation purposes. Net income (loss) from equipment is significantly
impacted by depreciation charges, which are greatest in the early years of
ownership due to the use of the double-declining balance method of depreciation.
The relationships of geographic revenues, net income (loss), and net book value
of equipment are expected to significantly change in the future as assets come
off lease and decisions are made to either redeploy the assets in the most
advantageous geographic location, or sell the assets.
The Partnership's owned equipment on lease to U.S.-domiciled lessees consists of
trailers and railcars. During 1999, lease revenues generated by wholly and
partially owned equipment in the United States accounted for 73% of the lease
revenues, while net operating income accounted for $1.3 million of the $0.9
million aggregate net income for the Partnership. The Partnership sold trailers
and railcars in this region for an aggregate net gain of $0.3 million in 1999.
The Partnership's equipment leased to Canadian-domiciled lessees consists of
railcars. During 1999, lease revenues generated by wholly and partially owned
equipment in Canada accounted for 24% of the lease revenues, while the net
operating income accounted for $0.8 million of the $0.9 million aggregate net
income for the Partnership. The Partnership sold railcars in this region for a
net gain of $0.1 million in 1999.
The Partnership's investment in equipment owned by a USPE in South Asia
accounted for none of the Partnership's lease revenue from wholly and partially
owned equipment. This equipment resulted in a $0.4 million of net loss, due to
the aircraft being off lease in 1999.
In 1999, marine containers, which were leased in various regions throughout the
year, accounted for 3% of the lease revenues from wholly and partially owned
equipment. This equipment resulted in $0.3 million of the net loss in 1999,
primarily due to a group of marine containers coming off lease during 1999.
(F) Effects of Year 2000
As of March 6, 2000, the Partnership has not experienced any material Year 2000
(Y2K) issues with either its internally developed software or purchased
software. In addition, to date the Partnership has not been impacted by any Y2K
problems that may have impacted our customers and suppliers. The General Partner
continues to monitor its systems for any potential Y2K issues.
(G) Inflation
Inflation had no significant impact on the Partnership's operations during 1999,
1998, or 1997.
(H) Forward-Looking Information
Except for historical information contained herein, the discussion in this Form
10-K 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-K should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-K. The Partnership's actual results could differ materially from
those discussed here.
(I) Outlook for the Future
Since the Partnership is in its active 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. Throughout the remaining life of the
Partnership, the Partnership may periodically make special distributions to the
partners as asset sales are completed.
Several factors may affect the Partnership's operating performance in 2000 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 and investment in USPE 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 2000 and beyond includes:
1. The Partnership's remaining aircraft that, it jointly owns with an affiliated
Partnership, has been off-lease for over two years. This aircraft required
extensive repairs and maintenance and has had difficulty being re-leased or
sold. This aircraft will remain off-lease until it is sold.
2. The General Partner continues to seek a lessee for the Partnership's 75 mill
gondola railcars, which have remained off lease since May of 1999. Demand for
these particular mill gondolas has been weak, as they are older, low cubic
capacity, and low-sided railcars.
3. Demand for the Partnership's refrigerated marine containers has been weak, as
they are older containers. These marine containers are currently off lease and
the General Partner plans to dispose of these containers.
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 unpredicability 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 make an evaluation 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 Partnership intends to use cash flow from operations to satisfy its
operating requirements and pay cash distributions to the partners.
(1) Repricing Risk
Certain of the Partnership's trailers, railcars, and marine containers will be
remarketed in 2000 as existing leases expire, exposing the Partnership to some
repricing risk/opportunity. Additionally, the General Partner may elect to sell
certain underperforming equipment or equipment whose continued operation may
become prohibitively expensive. In either case, the General Partner intends to
re-lease or sell equipment at prevailing market rates; however, the General
Partner cannot predict these future rates with any certainty at this time, and
cannot accurately assess the effect of such activity on future Partnership
performance.
(2) Impact of Government Regulations on Future Operations
The General Partner operates the Partnership's equipment in accordance with
current applicable regulations (see Item 1, Section E, Government Regulations).
However, the continuing implementation of new or modified regulations by some of
the authorities mentioned previously, or others, may adversely affect the
Partnership's ability to continue to own or operate equipment in its portfolio.
Additionally, regulatory systems vary from country to country, which may
increase the burden to the Partnership of meeting regulatory compliance for the
same equipment operated between countries. Ongoing changes in the regulatory
environment, both in the United States and internationally, cannot be predicted
with any accuracy and preclude the General Partner from determining the impact
of such changes on Partnership operations, or sale of equipment. Under U.S.
Federal Aviation Regulations, after December 31, 1999, no person shall operate
an aircraft to or from any airport in the contiguous United States unless that
aircraft has been shown to comply with Stage III noise levels. The Partnership's
remaining Stage II aircraft is currently off-lease and is scheduled to be sold
in the year 2000. Furthermore, the Federal Railroad Administration has mandated
that effective July 1, 2000, all jacketed and non-jacketed tank railcars must be
re-qualified to insure tank shell integrity. Tank shell thickness, weld seams,
and weld attachments must be inspected and repaired if necessary to re-qualify a
tank railcar for service. The average cost of this inspection is $1,800 for
non-jacketed tank railcars and $3,600 for jacketed tank railcars, not including
any necessary repairs. This inspection is to be performed at the next scheduled
tank test.
(3) Distributions
During the active liquidation phase, the Partnership will use operating cash
flow and proceeds from the sale of equipment to meet its operating obligations
and make distributions to the partners. Although the General Partner intends to
maintain a sustainable level of distributions prior to final liquidation of the
Partnership, actual Partnership performance and other considerations may require
adjustments to existing distribution levels. In the long term, changing market
conditions and used equipment values preclude the General Partner from
accurately determining the impact of future re-leasing activity and equipment
sales on Partnership performance and liquidity.
Since the Partnership is in its active liquidation phase, 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 in the future, significant
asset sales may result in potential special distributions to unitholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposure is that of currency devaluation
risk. During 1999, 27% of the Partnership's total lease revenues from wholly-
and partially-owned equipment came from non-United States domiciled lessees.
Most of the leases require payment in United States (U.S.) currency. If these
lessees currency devalues against the U.S. dollar, the lessees could potentially
encounter difficulty in making the U.S.
dollar denominated lease payments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements for the Partnership are listed in the Index to
Financial Statements included in Item 14(a) of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
(This space intentionally left blank.)
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PLM INTERNATIONAL AND PLM
FINANCIAL SERVICES, INC.
As of the date of this annual report, the directors and executive officers of
PLM International and of PLM Financial Services, Inc. (and key executive
officers of its subsidiaries) are as follows:
Name Age Position
- ---------------------------------------- ------- ------------------------------------------------------------------
Robert N. Tidball 61 Chairman of the Board, Director, President, and Chief Executive
Officer, PLM International, Inc.;
Director, PLM Financial Services, Inc.;
Vice President, PLM Railcar Management Services, Inc.;
President, PLM Worldwide Management Services Ltd.
Randall L.-W. Caudill 52 Director, PLM International, Inc.
Douglas P. Goodrich 53 Director and Senior Vice President, PLM International, Inc.;
Director and President, PLM Financial Services, Inc.; President,
PLM Transportation Equipment Corporation; President, PLM Railcar
Management Services, Inc.
Warren G. Lichtenstein 34 Director, PLM International, Inc.
Howard M. Lorber 51 Director, PLM International, Inc.
Harold R. Somerset 64 Director, PLM International, Inc.
Robert L. Witt 59 Director, PLM International, Inc.
Robin L. Austin 53 Vice President, Human Resources, PLM International, Inc. and PLM
Financial Services, Inc.
Stephen M. Bess 53 President, PLM Investment Management, Inc.; Vice President and
Director, PLM Financial Services, Inc.
Richard K Brock 37 Vice President and Chief Financial Officer, PLM International,
Inc. and PLM Financial Services, Inc.
Susan C. Santo 37 Vice President, Secretary, and General Counsel, PLM
International, Inc. and PLM Financial Services, Inc.
Robert N. Tidball was appointed Chairman of the Board in August 1997 and
President and Chief Executive Officer of PLM International in March 1989. At the
time of his appointment as President and Chief Executive Officer, he was
Executive Vice President of PLM International. Mr. Tidball became a director of
PLM International in April 1989.
Mr. Tidball was appointed a Director of PLM Financial Services, Inc. in July
1997 and was elected President of PLM Worldwide Management Services Limited in
February 1998. He has served as an officer of PLM Railcar Management Services,
Inc. since June 1987. Mr. Tidball was Executive Vice President of Hunter Keith,
Inc., a Minneapolis-based investment banking firm, from March 1984 to January
1986. Prior to Hunter Keith, he was Vice President, General Manager, and
Director of North American Car Corporation and a director of the American
Railcar Institute and the Railway Supply Association.
Randall L.-W. Caudill was elected to the Board of Directors in September 1997.
He is President of Dunsford Hill Capital Partners, a San Francisco-based
financial consulting firm serving emerging growth companies. Prior to founding
Dunsford Hill Capital Partners, Mr. Caudill held senior investment banking
positions at Prudential Securities, Morgan Grenfell Inc., and The First Boston
Corporation. Mr. Caudill also serves as a director of Northwest Biotherapeutics,
Inc., VaxGen, Inc., SBE, Inc., and RamGen, Inc.
Douglas P. Goodrich was elected to the Board of Directors in July 1996,
appointed Senior Vice President of PLM International in March 1994, and
appointed Director and President of PLM Financial Services, Inc. in June 1996.
Mr. Goodrich has also served as Senior Vice President of PLM Transportation
Equipment Corporation since July 1989 and as President of PLM Railcar Management
Services, Inc. since September 1992, having been a Senior Vice President since
June 1987. Mr. Goodrich was an executive vice president of G.I.C. Financial
Services Corporation of Chicago, Illinois, a subsidiary of Guardian Industries
Corporation, from December 1980 to September 1985.
Warren G. Lichtenstein was elected to the Board of Directors in December 1998.
Mr. Lichtenstein is the Chief Executive Officer of Steel Partners II, L.P.,
which is PLM International's largest shareholder, currently owning 16% of the
Company's common stock. Additionally, Mr. Lichtenstein is Chairman of the Board
of Aydin Corporation, a NYSE-listed defense electronics concern, as well as a
director of Gateway Industries, Rose's Holdings, Inc., and Saratoga Beverage
Group, Inc. Mr. Lichtenstein is a graduate of the University of Pennsylvania,
where he received a Bachelor of Arts degree in economics.
Howard M. Lorber was elected to the Board of Directors in January 1999. Mr.
Lorber is President and Chief Operating Officer of New Valley Corporation, an
investment banking and real estate concern. He is also Chairman of the Board and
Chief Executive Officer of Nathan's Famous, Inc., a fast food company.
Additionally, Mr. Lorber is a director of United Capital Corporation and Prime
Hospitality Corporation and serves on the boards of several community service
organizations. He is a graduate of Long Island University, where he received a
Bachelor of Arts degree and a Masters degree in taxation. Mr. Lorber also
received charter life underwriter and chartered financial consultant degrees
from the American College in Bryn Mawr, Pennsylvania. He is a trustee of Long
Island University and a member of the Corporation of Babson College.
Harold R. Somerset was elected to the Board of Directors of PLM International in
July 1994. From February 1988 to December 1993, Mr. Somerset was President and
Chief Executive Officer of California & Hawaiian Sugar Corporation (C&H Sugar),
a subsidiary of Alexander & Baldwin, Inc. Mr. Somerset joined C&H Sugar in 1984
as Executive Vice President and Chief Operating Officer, having served on its
Board of Directors since 1978. Between 1972 and 1984, Mr. Somerset served in
various capacities with Alexander & Baldwin, Inc., a publicly held land and
agriculture company headquartered in Honolulu, Hawaii, including Executive Vice
President of Agriculture and Vice President and General Counsel. Mr. Somerset
holds a law degree from Harvard Law School as well as a degree in civil
engineering from the Rensselaer Polytechnic Institute and a degree in marine
engineering from the U.S. Naval Academy. Mr. Somerset also serves on the boards
of directors for various other companies and organizations, including Longs Drug
Stores, Inc., a publicly held company.
Robert L. Witt was elected to the Board of Directors in June 1997. Since 1993,
Mr. Witt has been a principal with WWS Associates, a consulting and investment
group specializing in start-up situations and private organizations about to go
public. Prior to that, he was Chief Executive Officer and Chairman of the Board
of Hexcel Corporation, an international advanced materials company with sales
primarily in the aerospace, transportation, and general industrial markets. Mr.
Witt also serves on the boards of directors for various other companies and
organizations.
Robin L. Austin became Vice President, Human Resources of PLM Financial
Services, Inc. in 1984, having served in various capacities with PLM Investment
Management, Inc., including Director of Operations, from February 1980 to March
1984. From June 1970 to September 1978, Ms. Austin served on active duty in the
United States Marine Corps and served in the United States Marine Corp Reserves
from 1978 to 1998. She retired as a Colonel of the United States Marine Corps
Reserves in 1998. Ms. Austin has served on the Board of Directors of the
Marines' Memorial Club and is currently on the Board of Directors of the
International Diplomacy Council.
Stephen M. Bess was appointed a Director of PLM Financial Services, Inc. in July
1997. Mr. Bess was appointed President of PLM Investment Management, Inc. in
August 1989, having served as Senior Vice President of PLM Investment
Management, Inc. beginning in February 1984 and as Corporate Controller of PLM
Financial Services, Inc. beginning in October 1983. Mr. Bess served as Corporate
Controller of PLM, Inc. beginning in December 1982. Mr. Bess was Vice
President-Controller of Trans Ocean Leasing Corporation, a container leasing
company, from November 1978 to November 1982, and Group Finance Manager with the
Field Operations Group of Memorex Corporation, a manufacturer of computer
peripheral equipment, from October 1975 to November 1978.
Richard K Brock was appointed Vice President and Chief Financial Officer of PLM
International and PLM Financial Services, Inc. in January 2000, after having
served as Acting CFO since June 1999. Mr. Brock served as Corporate Controller
of PLM International and PLM Financial Services, Inc. beginning in June 1997, as
Director of Planning and General Accounting beginning in February 1994, and as
an accounting manager beginning in September 1991. Mr. Brock was a division
controller of Learning Tree International, a technical education company, from
February 1988 through July 1991.
Susan C. Santo became Vice President, Secretary, and General Counsel of PLM
International and PLM Financial Services, Inc. in November 1997. She has worked
as an attorney for PLM International since 1990 and served as its Senior
Attorney since 1994. Previously, Ms. Santo was engaged in the private practice
of law in San Francisco. Ms. Santo received her J.D. from the University of
California, Hastings College of the Law.
The directors of PLM International, Inc. are elected for a three-year term and
the directors of PLM Financial Services, Inc. are elected for a one-year term or
until their successors are elected and qualified. No family relationships exist
between any director or executive officer of PLM International Inc. or PLM
Financial Services, Inc., PLM Transportation Equipment Corp., or PLM Investment
Management, Inc.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no directors, officers, or employees. The Partnership has no
pension, profit sharing, retirement, or similar benefit plan in effect as of
December 31, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) Security Ownership of Certain Beneficial Owners
The General Partner is generally entitled to a 5% interest in the
profits and losses and distributions of the Partnership, subject to
certain allocations of income. As of December 31, 1999, no investor was
known by the General Partner to beneficially own more than 5% of the
depositary units of the Partnership.
(B) Security Ownership of Management
Table 3, below, sets forth, as of the date of this report, the amount
and the percent of the Partnership's outstanding depositary units
beneficially owned by each director and executive officer and all
directors and executive officers as a group of the General Partner and
its affiliates:
TABLE 3
Name Depositary Units Percent of Units
Robert N. Tidball 400 *
All directors and officers
as a group (1 person) 400 *
* Less than 1% of the depositary units outstanding.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others
During 1999, management fees to IMI were $0.3 million. During 1999, the
Partnership reimbursed FSI and its affiliates $0.3 million for
administrative services and data processing expenses performed on
behalf of the Partnership.
During 1999, the Partnership's proportional share of the USPE's
administrative services and data processing expenses paid or accrued to
FSI or its affiliates was $6,000.
(This space intentionally left blank.)
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. Financial Statements
The financial statements listed in the accompanying Index to
Financial Statements are filed as part of this Annual Report on
Form 10-K.
(B) Reports on Form 8-K
None.
(C) Exhibits
4. Limited Partnership Agreement of Registrant, incorporated by
reference to the Partnership's Registration Statement on Form S-1
(Reg. No. 33-13113), which became effective with the Securities
and Exchange Commission on June 5, 1987.
4.1 Amendment, dated November 18, 1991, to Limited Partnership
Agreement of the Partnership, incorporated by reference to the
Partnership's Annual Report on Form 10-K filed with the Securities
and Exchange Commission on March 30, 1993.
10.1 Management Agreement between Registrant and PLM Investment
Management, Inc., incorporated by reference to the Partnership's
Registration Statement on Form S-1 (Reg. No. 33-13113), which
became effective with the Securities and Exchange Commission on
June 5, 1987.
10.2 $35,000,000 Note Agreement dated as of March 1, 1994, incorporated
by reference to the Partnership's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 27, 1995.
24. Powers of Attorney.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
The Partnership has no directors or officers. The General Partner has signed on
behalf of the Partnership by duly authorized officers.
Date: March 6, 2000 PLM EQUIPMENT GROWTH FUND II
PARTNERSHIP
By: PLM Financial Services, Inc.
General Partner
By: /s/Douglas P. Goodrich
Douglas P. Goodrich
President and Director
By: /s/Richard K Brock
Richard K Brock
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following directors of the Partnership's General
Partner on the dates indicated.
Name Capacity Date
*_____________________
Robert N. Tidball Director, FSI March 6, 2000
*_____________________
Douglas P. Goodrich Director, FSI March 6, 2000
*_____________________
Stephen M. Bess Director, FSI March 6, 2000
* Susan C. Santo, by signing her name hereto does sign this document on behalf
of the persons indicated above pursuant to powers of attorney duly executed by
such persons and filed with the Securities and Exchange Commission.
/s/Susan C. Santo
- ----------------------
Susan C. Santo
Attorney-in-Fact
PLM EQUIPMENT GROWTH FUND II
A Limited Partnership
INDEX TO FINANCIAL STATEMENTS
(Item 14(a))
Page
Independent auditors' report 26
Balance sheets as of December 31, 1999 and 1998 27
Statements of income for the years ended
December 31, 1999, 1998, and 1997 28
Statements of changes in partners' capital for the years
ended December 31, 1999, 1998, and 1997 29
Statements of cash flows for the years ended
December 31, 1999, 1998, and 1997 30
Notes to financial statements 31-39
All other financial statement schedules have been omitted, as the required
information is not pertinent to the registrant or is not material, or because
the information required is included in the financial statements and notes
thereto.
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund II:
We have audited the accompanying financial statements of PLM Equipment Growth
Fund II (the Partnership) as listed in the accompanying index to the financial
statements. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, PLM Equipment Growth Fund
II, in accordance with the limited partnership agreement, entered its
liquidation phase on January 1, 1999 and has commenced an orderly liquidation of
the Partnership assets. The Partnership will terminate on December 31, 2006,
unless terminated earlier upon sale of all equipment or by certain other events.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PLM Equipment Growth Fund II as
of December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1999, in
conformity with generally accepted accounting principles.
SAN FRANCISCO, CALIFORNIA
March 6, 2000
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31,
(in thousands of dollars, except unit amounts)
1999 1998
---------------------------------
ASSETS
Equipment held for operating lease, at cost $ 32,487 $ 36,212
Less accumulated depreciation (25,815) (27,223)
---------------------------------
Net equipment 6,672 8,989
Cash and cash equivalents 894 1,986
Accounts receivable, less allowance for doubtful
accounts of $107 in 1999 and $91 in 1998 877 975
Investment in an unconsolidated special-purpose entity 368 494
Prepaid expenses and other assets 47 30
--------------------------------
Total assets $ 8,858 $ 12,474
=================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 352 $ 352
Due to affiliates 67 83
Lessee deposits and reserve for repairs 783 772
---------------------------------
Total liabilities 1,202 1,207
---------------------------------
Partners' capital
Limited partners (7,381,805 depositary units as of
December 31, 1999 and 1998) 7,656 11,267
General Partner -- --
---------------------------------
Total partners' capital 7,656 11,267
---------------------------------
Total liabilities and partners' capital $ 8,858 $ 12,474
=================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
(in thousands of dollars, except weighted-average unit amounts)
1999 1998 1997
--------------------------------------------
REVENUES
Lease revenue $ 5,949 $ 7,355 $ 10,583
Interest and other income 90 222 243
Net gain on disposition of equipment 328 5,990 1,922
--------------------------------------------
Total revenues 6,367 13,567 12,748
Expenses
Depreciation and amortization 1,933 2,413 4,407
Repairs and maintenance 1,537 1,890 1,959
Equipment operating expenses 120 65 --
Insurance expense 42 82 115
Management fees to affiliate 295 369 518
Interest expense -- 47 650
General and administrative expenses to affiliate 271 428 575
Other general and administrative expenses 757 807 934
Provision for (recovery of) bad debt 30 (49) 376
--------------------------------------------
Total expenses 4,985 6,052 9,534
Equity in net loss of unconsolidated
special-purpose entities (448) (1,484) (519)
--------------------------------------------
Net income $ 934 $ 6,031 $ 2,695
============================================
PARTNERS' SHARE OF NET INCOME
Limited partners $ 707 $ 5,606 $ 2,196
General Partner 227 425 499
--------------------------------------------
Total $ 934 $ 6,031 $ 2,695
============================================
Net income per weighted-average depositary unit $ 0.10 $ 0.76 $ 0.30
============================================
Cash distribution $ 4,545 $ 4,604 $ 6,216
Special cash distribution -- 3,885 --
--------------------------------------------
Total distribution $ 4,545 $ 8,489 $ 6,216
============================================
Per weighted-average depositary unit:
Cash distribution $ 0.58 $ 0.59 $ 0.80
Special cash distribution -- 0.50 --
--------------------------------------------
Total distribution $ 0.58 $ 1.09 $ 0.80
============================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(in thousands of dollars)
Limited General
Partners Partner Total
--------------------------------------------------
Partners' capital (deficit) as of December 31, 1996 $ 17,434 $ (188) $ 17,246
Net income 2,196 499 2,695
Cash distribution (5,905) (311) (6,216)
---------------------------------------------------
Partners' capital as of December 31, 1997 13,725 -- 13,725
Net income 5,606 425 6,031
Cash distribution (4,373) (231) (4,604)
Special cash distribution (3,691) (194) (3,885)
---------------------------------------------------
Partners' capital as of December 31, 1998 11,267 -- 11,267
Net income 707 227 934
Cash distribution (4,318) (227) (4,545)
---------------------------------------------------
Partners' capital as of December 31, 1999 $ 7,656 -- $ 7,656
===================================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(in thousands of dollars)
OPERATING ACTIVITIES 1999 1998 1997
--------------------------------------------
Net income $ 934 $ 6,031 $ 2,695
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,933 2,413 4,407
Net gain on disposition of equipment (328) (5,990) (1,922)
Equity in net loss of unconsolidated special-purpose
entities 448 1,484 519
Changes in operating assets and liabilities:
Restricted cash -- 395 (100)
Accounts receivable, net 125 684 (277)
Prepaid expenses and other assets (17) 19 960
Accounts payable and accrued expenses -- (13) (47)
Due to affiliates (16) (112) 85
Lessee deposits and reserve for repairs 11 (1,074) (954)
--------------------------------------------
Net cash provided by operating activities 3,090 3,837 5,366
--------------------------------------------
Investing activities
Proceeds from disposition of equipment 691 7,880 5,089
Distribution from liquidation of unconsolidated
special-purpose entities -- 1,425 --
Additional investments in unconsolidated special-purpose
entities (322) (723) (1,145)
Payments for capital improvements (6) -- --
--------------------------------------------
Net cash provided by investing activities 363 8,582 3,944
--------------------------------------------
Financing activities
Principal payments on notes payable -- (2,500) (10,500)
Cash distribution paid to limited partners (4,318) (8,064) (5,905)
Cash distribution paid to General Partner (227) (425) (311)
--------------------------------------------
Net cash used in financing activities (4,545) (10,989) (16,716)
--------------------------------------------
Net (decrease) increase in cash and cash equivalents (1,092) 1,430 (7,406)
Cash and cash equivalents at beginning of year 1,986 556 7,962
--------------------------------------------
Cash and cash equivalents at end of year $ 894 $ 1,986 $ 556
============================================
Supplemental information
Interest paid $ -- $ 47 $ 653
============================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND II
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. BASIS OF PRESENTATION
ORGANIZATION
PLM Equipment Growth Fund II, a California limited partnership (the
Partnership), was formed on March 30, 1987. The Partnership engages
primarily in the business of owning, leasing, or otherwise investing in
predominately used transportation and related equipment. The Partnership
commenced significant operations in June 1987. PLM Financial Services, Inc.
(FSI) is the General Partner of the Partnership. FSI is a wholly-owned
subsidiary of PLM International, Inc. (PLM International).
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.
FSI manages the affairs of the Partnership. The cash distributions of the
Partnership are generally allocated 95% to the limited partners and 5% to
the General Partner. Net income is allocated to the General Partner to the
extent necessary to cause the General Partner's capital account to equal
zero. Such allocation of income may not cumulatively exceed five
ninety-fifths of the aggregate of the capital contributions made by the
limited partners and the reinvestment cash available for distribution. The
General Partner is also entitled to a subordinated incentive fee equal to
7.5% of surplus distributions, as defined in the limited partnership
agreement, remaining after the limited partners have received a certain
minimum rate of return.
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles. This requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosures of
contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
OPERATIONS
The equipment of the Partnership is managed under a continuing management
agreement by PLM Investment Management, Inc. (IMI), a wholly-owned
subsidiary of FSI. IMI receives a monthly management fee from the
Partnership for managing the equipment (see Note 2). FSI, in conjunction
with its subsidiaries, sells equipment to investor programs and third
parties, manages pools of equipment under agreements with the investor
programs, and is a general partner of other programs.
ACCOUNTING FOR LEASES
The Partnership's leasing operations generally consist of operating leases.
Under the operating lease method of accounting, the leased asset is
recorded at cost and depreciated over its estimated useful life. Rental
payments are recorded as revenue over the lease term. Lease origination
costs are capitalized and amortized over the term of the lease.
DEPRECIATION AND AMORTIZATION
Depreciation of transportation equipment held for operating leases is
computed on the double-declining balance method, taking a full month's
depreciation in the month of acquisition, based upon estimated useful lives
of 15 years for railcars and 12 years for most other types of equipment.
PLM EQUIPMENT GROWTH FUND II
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. BASIS OF PRESENTATION (CONTINUED)
DEPRECIATION AND AMORTIZATION (CONTINUED)
The depreciation method changes to straight line when annual depreciation
expense using the straight-line method exceeds that calculated by the
double-declining balance method. Acquisition fees have been capitalized as
part of the cost of the equipment. Lease negotiation fees were amortized
over the initial equipment lease term. Debt issuance costs were amortized
over the term of the loan for which they are paid. Major expenditures that
are expected to extend the useful lives or reduce future operating expenses
of equipment are capitalized and amortized over the estimated remaining
life of the equipment.
TRANSPORTATION EQUIPMENT
In accordance with the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of", the General Partner reviews the
carrying value of the Partnership's equipment at least quarterly and
whenever circumstances indicate that the carrying value of an asset may not
be recoverable in relation to expected future market conditions for the
purpose of assessing recoverability of the recorded amounts. If projected
undiscounted future lease revenue plus residual values are less than the
carrying value of the equipment, a loss on revaluation is recorded. No
reductions to the carrying value of equipment were required during 1999,
1998 or 1997.
Equipment held for operating leases is stated at cost.
INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITIES
The Partnership has an interest in an unconsolidated special-purpose entity
(USPE) that owns an aircraft. This interest is accounted for using the
equity method.
The Partnership's investment in USPEs includes acquisition and lease
negotiation fees paid by the Partnership to PLM Transportation Equipment
Corporation (TEC), a wholly-owned subsidiary of FSI. The Partnership's
interests in USPEs are managed by IMI. The Partnership's equity interest in
the net income (loss) of USPEs is reflected net of management fees paid or
payable to IMI and the amortization of acquisition and lease negotiation
fees paid to TEC.
REPAIRS AND MAINTENANCE
Repair and maintenance costs to railcars and the trailer equipment operated
in rental yards owned and maintained by PLM Rental, Inc., the short-term
trailer rental subsidiary of PLM International doing business as PLM
Trailer Leasing, are usually the obligation of the Partnership. Maintenance
costs for the marine containers are the obligation of the lessee. If they
are not covered by the lessee, they are generally charged against
operations as incurred. Accrued repairs and maintenance expenses for a
specific type of marine container are included in the balance sheet as
reserve for repairs.
NET INCOME AND DISTRIBUTIONS PER DEPOSITARY UNIT
Cash Distributions are allocated 95% to the limited partners and 5% to the
General Partner. Net income is allocated to the General Partner through
allocation to the extent necessary to cause the General Partner's capital
account to equal zero. Such allocation may not cumulatively exceed five
ninety-fifths of the aggregate of the capital contributions made by the
limited partners and the reinvestment cash available for distribution. The
limited partners' net income (loss) is allocated among the limited partners
based on the number of limited partnership units owned by each limited
partner and on the number of days of the year each limited partner is in
the Partnership. During
PLM EQUIPMENT GROWTH FUND II
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. BASIS OF PRESENTATION (CONTINUED)
NET INCOME AND DISTRIBUTIONS PER DEPOSITARY UNIT (CONTINUED)
1999, the General Partner received a special allocation of income of $0.2
million ($0.1 million in 1998 and $0.4 million in 1997).
Cash distributions are recorded when paid. Cash distributions relating to
the fourth quarter of 1999, 1998, and 1997 of $1.1 million ($0.15 per
weighted-average depositary unit), $1.1 million ($0.15 per weighted-average
depositary unit), and $1.2 million ($0.16 per weighted-average depositary
unit), respectively, were paid during the first quarter of 2000, 1999, and
1998.
Cash distributions to investors in excess of net income are considered a
return of capital. Cash distributions to the limited partners of $3.6
million, $2.5 million, and $3.7 million in 1999, 1998, and 1997,
respectively, were deemed to be a return of capital.
NET INCOME PER WEIGHTED-AVERAGE DEPOSITARY UNIT
Net income per weighted-average depositary unit was computed by dividing
net income 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
years ended December 31, 1999, 1998, and 1997 was 7,381,805.
CASH AND CASH EQUIVALENTS
The Partnership considers highly liquid investments that are readily
convertible to known amounts of cash with original maturities of three
months or less as cash equivalents. The carrying amount of cash and cash
equivalents approximates fair market value due to the short-term nature of
the investments.
COMPREHENSIVE INCOME
The Partnership's net income is equal to comprehensive income for the years
ended December 31, 1999, 1998, and 1997.
2. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES
An officer of FSI contributed $100 of the Partnership's initial capital.
Under the equipment management agreement, IMI receives a monthly management
fee attributable to either owned equipment or interests in equipment owned
by the USPEs equal to the greater of (i) 5% of Gross Revenues (as defined
in the agreement) prior to the payment of any principal and interest
incurred in connection with any indebtedness, or (ii) 1/12 of 1/2% of the
net book value of the equipment portfolio subject to certain adjustments.
Partnership management fees of $0.1 million, were payable as of December
31, 1999 and 1998. The Partnership's proportional share of the USPE's
management fee expense was $0 during 1999, 1998, and 1997. The Partnership
reimbursed FSI and its affiliates $0.3 million, $0.4 million, and $0.6
million in 1999, 1998, and 1997, respectively, for data processing expenses
and administrative services performed on behalf of the Partnership. The
Partnership's proportional share of the USPE's administrative and data
processing expenses reimbursed to FSI were $6,000, $12,000, and $9,000
during 1999, 1998 and 1997, respectively.
As of December 31, 1999, approximately 11% of the Partnership's trailer
equipment was in rental facilities operated by PLM Rental, Inc., an
affiliate of the General Partner, doing business as PLM Trailer Leasing.
Rents are reported as revenue in accordance with Financial Accounting
Standards Board Statement No. 13 "Accounting for Leases". Direct expenses
associated with the equipment are charged directly to the Partnership.
Direct expenses associated with the equipment are charged
PLM EQUIPMENT GROWTH FUND II
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
2. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES (CONTINUED)
directly to the Partnership. An allocation of indirect expenses of the
rental yard operations is charged to the Partnership monthly.
3. EQUIPMENT
The components of owned equipment as of December 31, were as follows (in
thousands of dollars):
Equipment held for operating leases 1999 1998
- -----------------------------------
----------------------------------
Railcars $ 16,249 $ 17,320
Trailers 10,606 11,884
Marine containers 5,632 7,008
----------------------------------
32,487 36,212
Less accumulated depreciation (25,815) (27,223)
---------------------------------
Net equipment $ 6,672 $ 8,989
==================================
Revenues are earned under operating leases. A portion of the Partnership's
marine containers are leased to operators of utilization-type leasing pools
that include equipment owned by unaffiliated parties. In such instances,
revenues received by the Partnership consist of a specified percentage of
revenues generated by leasing the equipment to sublessees, after deducting
certain direct operating expenses of the pooled equipment. Rents for
railcars are based on mileage traveled or a fixed rate; rents for all other
equipment are based on fixed rates.
As of December 31, 1999, all owned equipment in the Partnership portfolio
was either on lease or operating in PLM-affiliated short-term trailer
rental facilities, except for 84 railcars and 134 marine containers with an
aggregate net book value of $0.4 million. As of December 31, 1998, all
owned equipment in the Partnership portfolio was either on lease or
operating in PLM-affiliated short-term trailer rental facilities, except
for 6 railcars and 115 marine containers with an aggregate net book value
of $0.2 million.
The General Partner, on behalf of the Partnership, incurred $6,000 in 1999
in capital improvements, but did not purchase any additional equipment, in
accordance with the limited partnership agreement.
During 1999, the General Partner sold or disposed of marine containers,
trailers, and railcars owned by the Partnership, with an aggregate net book
value of $0.4 million, for proceeds of $0.7 million. During 1998, the
General Partner sold or disposed of aircraft, marine containers, trailers,
and railcars owned by the Partnership, with an aggregate net book value of
$1.9 million, for proceeds of $7.9 million.
There were no reductions to the carrying values of equipment in 1999, 1998,
or 1997.
All owned equipment on lease is being accounted for as operating leases.
Future minimum rents under noncancelable operating leases as of December
31, 1999 during each of the next five years are approximately $2.5 million
in 2000, $0.8 million in 2001, $0.1 million in 2002, $0.1 million in 2003,
$14,000 in 2004 and $0 thereafter. Per diem and short-term rentals
consisting of utilization rate lease payments included in revenue amounted
to approximately $2.5 million, $3.7 million, and $4.8 million in 1999,
1998, and 1997, respectively.
PLM EQUIPMENT GROWTH FUND II
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
4. INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITIES
The following summarizes the financial information for the special-purpose
entities and the Partnership's interests therein as of and for the year
ended December 31 (in thousands of dollars):
1999 1998 1997
-------- -------- --------
Net Net Net
Total Interest of Total Interest of Total Interest of
USPE Partnership USPEs Partnership USPEs Partnership
------------------------------------------------------------------------------------
Net investments $ 739 $ 368 $ 992 $ 494 $ 8,891 $ 2,680
Net loss (900) (448) (3,028) (1,48) (1,039) (519)
The net investment in a USPE consisted of a 50% interest in a trust owning
a Boeing 737-200A aircraft (and related assets and liabilities) totaling
$0.4 million and $0.5 million as of December 31, 1999 and 1998,
respectively. This aircraft was off lease as of December 31, 1999 and 1998.
In October 1999, this entity received a $0.2 million deposit for the sale
of the aircraft. The buyer failed to perform under the terms of the
agreement and the deposit was recorded as income.
During the year ended December 31, 1998, the General Partner sold a Boeing
727-200 aircraft in which the Partnership owned a 23% interest, at
approximately its net book value. The Partnership received liquidating
distributions of $1.4 million from this USPE during the first quarter of
1998.
5. Operating Segments
The Partnership operates in four primary operating 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 General Partner evaluates the performance of each segment based on
profit or loss from operations before allocation of general and
administrative expenses, interest expense, and certain other expenses. The
segments are managed separately due to different business strategies for
each operation.
(This space intentionally left blank.)
PLM EQUIPMENT GROWTH FUND II
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
5. OPERATING SEGMENTS (CONTINUED)
The following tables present a summary of the operating segments (in
thousands of dollars):
Marine
Aircraft Container Trailer Railcar All
For the Year Ended December 31, 1999 Leasing Leasing Leasing Leasing Other1 Total
------------------------------------ ------- ------- ------- ------- ---- -----
REVENUES
Lease revenue $ -- $ 163 $ 2,214 $ 3,572 $ -- $ 5,949
Interest income and other -- -- -- 13 77 90
Net gain (loss) on disposition
of equipment 47 (67) 161 187 -- 328
--------------------------------------------------------------
Total revenues 47 96 2,375 3,772 77 6,367
EXPENSES
Operations support -- 3 674 1,001 21 1,699
Depreciation and amortization -- 332 834 767 -- 1,933
Management fee -- 8 109 178 -- 295
General and administrative expenses 5 12 342 208 461 1,028
(Recovery of) provision for bad -- (1) 10 21 -- 30
debts
--------------------------------------------------------------
Total costs and expenses 5 354 1,969 2,175 482 4,985
--------------------------------------------------------------
Equity in net loss of USPE (448) -- -- -- -- (448)
--------------------------------------------------------------
Net income (loss) $ (406) $ (258) $ 406 $ 1,597 $ (405) $ 934
==============================================================
As of December 31, 1999
Total assets $ 368 $ 754 $ 4,460 $ 2,335 $ 941 $ 8,858
==============================================================
Marine
Aircraft Container Trailer Railcar All
For the Year Ended December 31, 1998 Leasing Leasing Leasing Leasing Other1 Total
------------------------------------ ------- ------- ------- ------- ---- -----
REVENUES
Lease revenue $ 83 $ 251 $ 2,801 $ 4,220 $ -- $ 7,355
Interest income and other -- 3 -- 6 213 222
Net gain (loss) on disposition
of equipment 4,835 (21) 775 401 -- 5,990
--------------------------------------------------------------
Total revenues 4,918 233 3,576 4,627 213 13,567
EXPENSES
Operations support 36 5 727 1,229 40 2,037
Depreciation and amortization 74 379 1,143 817 -- 2,413
Interest expense -- -- -- -- 47 47
Management fee 8 13 139 209 -- 369
General and administrative expenses 40 18 451 163 563 1,235
(Recovery of) provision for bad (72 ) -- 11 12 -- (49)
debts
--------------------------------------------------------------
Total costs and expenses 86 415 2,471 2,430 650 6,052
--------------------------------------------------------------
Equity in net loss of USPEs (1,484) -- -- -- -- (1,484)
--------------------------------------------------------------
Net income (loss) $ 3,348 $ (182) $ 1,105 $ 2,197 $ (437) $ 6,031
==============================================================
As of December 31, 1998
Total assets $ 494 $ 1,166 $ 4,677 $ 3,146 $ 2,991 $ 12,474
==============================================================
1 Includes costs identifiable to a particular segment such as interest expenses and certain interest
income and other, operations support expenses and general and administrative expenses.
PLM EQUIPMENT GROWTH FUND II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
5. OPERATING SEGMENTS (CONTINUED)
Marine
Aircraft Container Trailer Railcar All
For the Year Ended December 31, 1997 Leasing Leasing Leasing Leasing Other2 Total
------------------------------------ ------- ------- ------- ------- ---- -----
REVENUES
Lease revenue $ 1,903 $ 673 $ 3,479 $ 4,528 $ -- $ 10,583
Interest income and other -- 8 -- 12 223 243
Net gain on disposition of
equipment 1,349 245 310 18 -- 1,922
----------------------------------------------------------------
Total revenues 3,252 926 3,789 4,558 223 12,748
EXPENSES
Operations support 55 10 694 1,277 38 2,074
Depreciation and amortization 1,252 521 1,618 859 157 4,407
Interest expense -- -- -- -- 650 650
Management fee 83 28 178 229 -- 518
General and administrative expenses 49 31 591 191 647 1,509
Provision for (recovery of) bad 260 113 (5) 8 -- 376
debts
----------------------------------------------------------------
Total costs and expenses 1,699 703 3,076 2,564 1,492 9,534
----------------------------------------------------------------
Equity in net loss of USPE (519) -- -- -- -- (519)
----------------------------------------------------------------
Net income (loss) $ 1,034 $ 223 $ 713 $ 1,994 $ (1,269) $ 2,695
================================================================
As of December 31, 1997
Total assets $ 3,757 $ 1,760 $ 6,359 $ 4,129 $ 2,626 $ 18,631
================================================================
2 Includes costs not identifiable to a particular segment such as interest expenses, and amortization
expense, and certain interest income and other, operations support expenses and general and administrataive
expenses.
6. GEOGRAPHIC INFORMATION
The Partnership owns certain equipment that is leased and operated
internationally. A limited number of the Partnership's transactions are
denominated in a foreign currency. Gains or losses resulting from foreign
currency transactions are included in the results of operations and are not
material.
The Partnership leases or leased its aircraft, railcars, and trailers to
lessees domiciled in four geographic regions: the United States, Canada,
Europe, and South Asia. Marine containers are leased to multiple lessees in
different regions that operate worldwide.
The table below sets forth lease revenues by geographic region for the
Partnership's owned equipment, grouped by domicile of the lessee as of and
for the years ended December 31 (in thousands of dollars):
Owned Equipment
Region 1999 1998 1997
---------------------------- ----------------------------------------
United States $ 4,350 $ 5,680 $ 7,762
Canada 1,436 1,424 1,208
Europe -- -- 940
Rest of the world 163 251 673
========================================
Lease revenues $ 5,949 $ 7,355 $ 10,583
========================================
PLM EQUIPMENT GROWTH FUND II
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
6. GEOGRAPHIC INFORMATION (CONTINUED)
The following table sets forth net income (loss) information by region for
the Partnership's owned equipment and investments in USPEs, grouped by
domicile of the lessee as of and for the years ended December 31 (in
thousands of dollars):
Owned Equipment Investments in USPEs
--------------------------------------- ------------------------------------
Region 1999 1998 1997 1999 1998 1997
------------------------------------ --------------------------------------- ------------------------------------
United States $ 1,278 $ 3,270 $ 3,533 $ -- $ -- $ --
Canada 767 1,162 470 -- -- --
Europe -- 3,702 260 -- -- --
South Asia -- -- -- (448) (1,484) (519)
Rest of the world (258) (182) 218 -- -- --
--------------------------------------- ------------------------------------
Regional income (loss) 1,787 7,952 4,481 (448) (1,484) (519)
Administrative and other (405) (437) (1,267) -- -- --
======================================= ====================================
Net income (loss) $ 1,382 $ 7,515 $ 3,214 $ (448) $ (1,484) $ (519)
======================================= ====================================
The net book value of these assets as of December 31, are as follows
(in thousands of dollars):
Owned Equipment Investments in USPEs
------------------------------------ -------------------------------------
Region 1999 1998 1997 1999 1998 1997
-------------------------- ------------------------------------ -------------------------------------
United States $ 5,372 $ 7,014 $ 9,760 $ -- $ -- $ --
Canada 614 809 1,016 -- -- --
South Asia -- -- -- 368 494 1,235
Rest of the world 686 1,166 1,761 -- -- --
---------------------------------- -------------------------------------
6,672 8,989 12,537 368 494 1,235
Equipment held for sale -- -- 788 -- -- 1,445
================================== =====================================
Net book value $ 6,672 $ 8,989 $ 13,325 $ 368 $ 494 $ 2,680
================================== =====================================
7. CONCENTRATIONS OF CREDIT RISK
No single lessee accounted for more than 10% of the consolidated revenues
for the years ended December 31, 1999, 1998 and 1997. In 1998, however,
Sabre Airways purchased a commercial aircraft from the Partnership and the
gain from the sale accounted for 27.3% of total consolidated revenues from
wholly and partially owned equipment during 1998.
As of December 31, 1999 and 1998, the General Partner believes the
Partnership had no other significant concentrations of credit risk that
could have a material adverse effect on the Partnership.
8. INCOME TAXES
The Partnership is not subject to income taxes, as any income or loss is
included in the tax returns of the individual partners. Accordingly, no
provision for income taxes has been made in the financial statements of the
Partnership.
As of December 31, 1999, the federal income tax basis was higher than the
financial statement carrying values of certain assets and liabilities by
$10.7 million, primarily due to differences in depreciation methods and
equipment reserves and the tax treatment of underwriting commissions and
syndication costs.
PLM EQUIPMENT GROWTH FUND II
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
9. 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
counter-claims 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
vigorously defend against such counterclaims. The General Partner believes
an unfavorable outcome from the counterclaims is remote.
11. 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, will continue to be
distributed on a quarterly basis to partners. 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.
No special distibutions were paid in 1999 and 1997. In 1998, the General
Partner paid special distributions of $0.50 per weighted-average depositary
unit. The Partnership is not 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 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 leases, the ability of the lessee to exercise purchase
options.
(This space intentionally left blank.)
PLM EQUIPMENT GROWTH FUND II
INDEX OF EXHIBITS
Exhibit Page
4. Limited Partnership Agreement of Partnership *
4. 1 Amendment to Limited Partnership Agreement of Registrant *
10. 1 Management Agreement between Partnership and PLM Investment *
Management, Inc.
10. 2 $35,000,000 Note Agreement dated as of March 1, 1994 *
24. Powers of Attorney 41-43
- --------------------------
*Incorporated by reference. See page 23 of this report.