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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, 2000.
[ ] 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 (Section 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 12, 2001
Limited partnership depositary units: 7,381,475
General Partnership units: 1
An index of exhibits filed with this Form 10-K is located at page 37.
Total number of pages in this report:
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 effect 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, 2000, there were 7,381,475 depositary units outstanding.
On January 1, 1999, the Partnership entered its liquidation phase and in
accordance with the limited partnership agreement, the General Partner has
commenced 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, as of December 31, 2000 (in thousands of dollars):
TABLE 1
Units Type Manufacturer Cost
- --------------------------------------------------------------------------------
Owned equipment held for operating leases:
287 Box railcars Various 5,479
118 Mill gondolas railcars Various 3,340
87 Pressurized tank railcars Various 2,449
42 Nonpressurized tank railcars Various 1,031
26 Covered hopper railcars ACF Industries 414
618 Dry piggyback trailers Various 9,510
115 Refrigerated marine containers Various 2,504
-------------
Total owned equipment held for operating lease 24,727(1)
=============
- ----------
(1) Includes equipment purchased with the proceeds from capital contributions,
undistributed cash flow from operations, and Partnership borrowings. Includes
costs capitalized subsequent to the date of acquisition and equipment
acquisition fees paid to PLM Transportation Equipment Corporation (TEC), a
wholly-owned subsidiary of FSI. All equipment was used equipment at the time of
purchase.
Railcars are leased under operating leases with terms of six months to six
years. The Partnership's marine containers and trailers 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.
The lessees of the equipment include Cronos, Union Pacific Railroad 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
The equipment owned 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, Xtra Corporation, and other investment programs that lease
the same types of equipment.
(D) Demand
The Partnership currently operates in three primary operating segments: railcar
leasing, trailer leasing and marine container leasing. Each equipment leasing
segment engages in short-term to mid-term operating leases to a variety of
customers. The Partnership 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 primarily used to transport paper and paper products. Carloadings of
forest products in North America remained virtually unchanged in 2000 compared
to 1999. Over the 2001-04 period the U.S. paper and paperboard mills sector
should see shipments increase about 2% annually. These increases are expected to
come from both domestic and international sources.
The Partnership's boxcars are in the process of being returned by the present
lessee. These cars have a smaller load capacity than those currently in demand
for paper service. Depending upon the market for these cars over the coming
months, they will either be leased to another lessee, or sold.
(b) Mill Gondolas Railcars
Mill gondola railcars are typically used 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, in 2000 carloadings for the commodity group
that includes scrap steel increased 1% over 1999 volumes.
(c) Pressurized Tank Railcars
Pressurized tank cars are used to transport liquefied petroleum gas (natural
gas) and anhydrous ammonia (fertilizer). The U.S. markets for natural gas are
industrial applications (46% of estimated demand in 2000), residential use
(21%), electrical generation (15%), commercial applications (15%), and
transportation (3%). Natural gas consumption is expected to grow over the next
few years as most new electricity generation capacity planned for is expected to
be natural gas-fired. Within the fertilizer industry, demand is a function of
several factors, including the level of grain prices, the status of government
farm subsidy programs, the 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 1% in 2000, compared to 1999.
Consequently, demand for pressurized tank cars remained relatively constant
during 2000, with utilization of this type of railcar within the Partnership
remaining above 98%. While renewals of existing leases continue at similar
rates, some cars continue to be renewed for "winter only" terms of approximately
six months. As a result, there are many pressurized tank cars up for renewal in
the spring of 2001.
(d) General Purpose (Nonpressurized) Tank Railcars
These cars are used to transport bulk liquid commodities and chemicals not
requiring pressurization, such as certain petroleum products, liquefied asphalt,
lubricating oils, molten sulfur, vegetable oils and corn syrup. This car type
continued to be in high demand during 2000. The overall health of the market for
these types of commodities is closely tied to both the U.S. 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, in 2000 carloadings of the commodity group that
includes chemicals and petroleum products rose 1% over 1999 levels. Utilization
of the Partnership's nonpressurized tank cars remained above 98% during 2000.
(e) Covered Hopper (Grain) Railcars
Demand for covered hopper cars, which are specifically designed to service the
agricultural industry, continued to experience weakness during 2000. The U.S.
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, in 2000 carloadings of agricultural products decreased
2% compared to 1999. Other factors contributing to the softness in demand for
covered hopper cars is the large number of new cars built during the last few
years and the improved utilization of covered hoppers by the railroads.
(2) Intermodal (Piggyback) Trailers
Intermodal (piggyback) trailers are used to transport a variety of dry goods by
rail on flatcars, usually for distances of over 400 miles. Over the past decade,
intermodal trailers have continued to be gradually displaced by domestic
containers as the preferred method of transport for such goods. This is caused
by railroads offering approximately 15% lower freight rates on containers
compared to trailers. During 2000, demand for intermodal trailers was more
volatile than historic norms. Slow demand occurred over the second half of the
year due to a slowing economy and continued customer concerns over rail service
problems associated with mergers in the rail industry. Due to the decline in
demand, which occurred over the latter half of 2000, overall shipments within
the intermodal trailer market declined more than expected for the year, or
approximately 10% compared to the prior year. Average utilization of the entire
intermodal fleet rose from 73% in 1998 to 77% in 1999 and then declined to 81%
in 2000.
The General Partner further expanded its marketing program to attract new
customers for the Partnership's intermodal trailers during 2000. These efforts
resulted in average utilization for the Partnership's intermodal trailers of
approximately 81% for the year, down 1% compared to 1999 levels.
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 6% -10% in 2001, compared to the prior year, due to the
anticipated continued weakness of the overall economy. As such, the nationwide
supply of intermodal trailers is expected to be approximately 10,000 units
higher than demand in 2001. Maintenance costs have increased approximately 20%
due to improper repair methods performed by the railroads and billed to owners.
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. Significant efforts will also be undertaken to reduce
maintenance costs and cartage costs.
(3) Marine Containers
The Partnerships fleet of both standard dry and specialized containers is in
excess of twelve years of age and is generally no longer suitable for use in
international commerce either due to it's specific physical condition, or
lessees preferences for newer equipment. As individual containers are returned
from their specific lessees they are being marketed for sale on "as is, where
is" basis. The market for such sales, although highly dependent upon the
specific location and type of container, has continued to be strong over the
last several years as it relates to standard dry containers. The Partnership has
in the last year experienced reduced residual values on the sale of refrigerated
containers due primarily to technological obsolescence associated with the
equipment's refrigeration machinery.
(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 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).
(2) 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. The Partnership owns 133 of this type of railcars. As of December 31,
2000, 6 have been inspected and no defects have been found.
As of December 31, 2000, 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, 2000, the Partnership owned a portfolio of transportation and
related equipment 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, 2000.
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED DEPOSITARY UNIT MATTERS
As of March 2, 2001, there were 7,381,475 depositary units outstanding. There
are 5,945 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
depository units 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.
The Partnership is listed on the OTC Bulletin Board under the symbol GFYPZ.
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.
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)
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------
Operating results:
Total revenues $ 7,878 $ 6,367 $ 13,567 $ 12,748 $ 14,819
Net gain on disposition of equipment 2,448 328 5,990 1,922 2,085
Equity in net income (loss) of
unconsolidated special-purpose
entities 1,304 (448) (1,484) (519) 6,267
Net income 4,207 934 6,031 2,695 8,186
At year-end:
Total assets $ 7,535 $ 8,858 $ 12,474 $ 18,631 $ 33,595
Total liabilities 983 1,202 1,207 4,906 16,349
Notes payable -- -- -- 2,500 13,000
Cash distribution $ 4,534 $ 4,545 $ 4,604 $ 6,216 $ 8,957
Special distribution $ 777 -- $ 3,885 -- --
Cash distribution representing a
return of capital to the limited
partners $ 1,104 $ 3,611 $ 2,458 $ 3,709 $ 1,045
Per weighted-average depositary unit:
Net income $ 0.53(1) $ 0.10(1) $ 0.76(1) $ 0.30(1) $ 1.01(1)
Cash distribution $ 0.58 $ 0.58 $ 0.59 $ 0.80 $ 1.15
Special distribution $ 0.10 $ -- $ 0.50 $ -- $ --
Cash distribution representing a
return of capital to the limited
partners $ 0.15 $ 0.49 $ 0.33 $ 0.50 $ 0.14
- ----------
(1) After a reduction of income of $0.1 million ($0.01 per weighted-average
depositary unit) in 2000, representing allocations to the General Partner. After
an increase of income of $0.2 million ($0.02 per weighted-average depositary
unit) in 1999. After reductions in net income of $0.1 million ($0.02 per
weighted-average depositary unit) in 1998, $0.4 million ($0.05 per
weighted-average depositary unit) in 1997, and $0.3 million ($0.04 per
weighted-average depositary unit) in 1996, 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 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 2000 in its
railcar, trailer, and marine container portfolios.
(a) Railcars: 203 of the Partnership's railcars came off lease during the
second half of 2000 and are currently being marketed for sale. 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 1999 to 2000 due to the sale and disposition of railcars during
1999 and 2000.
(b) Trailers: The Partnership's trailer portfolio operates or operated in
short-term rental facilities or with short-line railroad systems. The majority
of these trailers were sold in September 2000. 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 $0.3 million
from 1999 to 2000 primarily due to the sale and disposition of trailers during
1999 and 2000.
(c) Marine containers: 132 of the Partnership's marine containers came off
lease during 1999. Of these 46 were sold during 2000 with the remaining
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 1999 to 2000 primarily
due to marine containers coming off lease during 1999 and remaining off lease
during 2000.
(2) Equipment Liquidations
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. During the year ended December 31, 2000, the Partnership sold or
disposed of marine containers, trailers, and railcars, with an aggregate net
book value of $0.8 million, for proceeds of $3.3 million and it's interest in an
entity owning a commercial aircraft with a net book value of $0.3 million for
proceeds of $1.8 million less a commission of $0.2 million.
(3) Equipment Valuation
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, 2000, 1999, or 1998.
(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, 2000, 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, 2000, the Partnership generated $1.8 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 $3.5 million to make distributions (total in 2000 of $5.3 million)
to the partners.
During the year ended December 31, 2000, the Partnership sold or disposed of
marine containers, trailers, and railcars, with an aggregate net book value of
$0.8 million, for proceeds of $3.3 million. In March 2000, the Partnership sold
it's 50% interest in an entity that owned a commercial aircraft with a net book
value of $0.3 million for $1.8 million less a commission of $0.2 million.
The Partnership's reserve for repairs and lessee deposits decreased by $0.3
million due to the sale of containers during 2000. As containers are sold any
unused portion of the reserves for repairs for those containers are recognized
ratably as proceeds from sale of equipment.
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, 2000 and 1999.
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance,
equipment operating expense and asset-specific insurance expenses) on owned
equipment decreased during the year ended December 31, 2000, when compared to
the same period of 1999. 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,
2000 1999
----------------------------
Railcars $ 1,983 2,571
Trailers 1,217 1,540
Marine containers 75 160
Railcars: Railcar lease revenues and direct expenses were $3.3 million and $1.3
million, respectively, for 2000, compared to $3.6 million and $1.0 million,
respectively, during 1999. Lease revenue decreased approximately $0.3 million in
2000, compared to the same period of 1999, due to more cars being off-lease in
2000 compared to 1999. Railcar expenses increased by $0.3 million due repairs
required on a group of railcars in 2000 which were being marketed for sale.
Similar repairs were not required in 1999.
Trailers: Trailer lease revenues and direct expenses were $2.0 million and $0.7
million, respectively, for 2000, compared to $2.2 million and $0.7 million,
respectively, during 1999. Lease revenue decreased approximately $0.3 million
from 1999 to 2000 primarily due to the sale and disposition of trailers in 2000.
Marine containers: Marine container lease revenues were $0.1 and $0.2 million
for 2000 and 1999, respectively. The decrease in lease revenue was primarily due
to a group of marine containers that were off lease during 2000 that were on
lease in 1999.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $2.9 million for the year ended December 31, 2000
decreased from $3.3 million for the same period of 1999. Significant variances
are explained as follows:
(i) A $0.3 million decrease in depreciation expense from 1999 levels
reflects the effect of asset sales in 2000 and 1999.
(ii) The $0.1 million decrease in bad debt expense was due to the recovery
of an outstanding receivable in the year ended December 31, 2000, that had
previously been reserved as a bad debt. A similar recovery did not occur in
1999.
(c) Net Gain on Disposition of Owned Equipment
Net gain on disposition of equipment for the year ended December 31, 2000
totaled $2.4 million, which resulted from the disposal of marine containers,
trailers, and railcars, with an aggregate net book value of $0.8 million, for
aggregate proceeds of $3.3 million. For the year ended December 31, 1999, the
$0.3 million net gain on disposition of equipment resulted from the disposal of
marine containers, trailers, and railcars, with an aggregate net book value of
$0.4 million, for aggregate proceeds of $0.7 million.
(d) Equity in Net Income (Loss) of USPEs
Equity in net income (loss) of unconsolidated special-purpose entities
represents the Partnership's share of the net income (loss) generated from the
operation of jointly-owned assets accounted for under the equity method (see
Note 4 to the financial statements).
The Partnership's remaining 50% interest in an entity that owned a commercial
aircraft was off lease during 1999 and was sold in March 2000 for a gain $1.4
million. The Partnership's had no revenues in 2000 and expenses were $0.1
million, in 1999 revenue and expenses were $0.1 million and $0.5 million,
respectively.
(e) Net Income
As a result of the foregoing, the Partnership's net income for the period ended
December 31, 2000 was $4.2 million, compared to net income of $0.9 million
during the same period in 1999. 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, 2000 is not necessarily
indicative of future periods. In the year ended December 31, 2000, the
Partnership distributed $5.0 million to the limited partners, or $0.68 per
weighted-average depositary unit.
(2) 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,
equipment operating expense and asset-specific insurance expenses) on owned
equipment decreased during the year ended December 31, 1999, when compared to
the same period of 1998. 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 were $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.
(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 change significantly 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 2000, lease revenues generated by wholly and
partially owned equipment in the United States accounted for 74% of the lease
revenues generated by wholly and partially owned equipment, while net operating
income accounted for $2.7 million of the $4.2 million aggregate net income for
the Partnership. The Partnership sold trailers and railcars in this region for
an aggregate net gain of $2.2 million in 2000.
The Partnership's equipment leased to Canadian-domiciled lessees consists of
railcars. During 2000, lease revenues generated by wholly and partially owned
equipment in Canada accounted for 24% of the lease revenues generated by the
wholly and partially owned equipment, while the net operating income accounted
for $0.7 million of the $4.2 million aggregate net income for the Partnership.
The Partnership sold railcars in this region for a net gain of $47,000 in 2000.
The Partnership's investment in equipment owned by a USPE in South Asia did not
account for any of the Partnership's lease revenue from wholly and partially
owned equipment. This equipment was sold in 2000 for a gain of $1.4 million.
In 2000, marine containers, which were leased in various regions throughout the
year, accounted for 2% of the lease revenues from wholly owned equipment in
2000. This equipment generated a net income of $42,000 in 2000. The Partnership
sold containers in 2000 for a gain of $0.2 million.
(F) Inflation
Inflation had no significant impact on the Partnership's operations during 2000,
1999, or 1998.
(G) 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.
(H) 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. The Partnership is expected to liquidate at the end of 2002. 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.
Factors affecting the Partnership's contribution during the year 2001:
The Partnership's fleet of both standard dry and specialized marine containers
is in excess of twelve years of age and is generally no longer suitable for use
in international commerce either due to its specific physical condition, or
lessees preferences for newer equipment. Demand for the Partnership's marine
containers will continue to be weak due to their age.
Railcar loadings in North America have continued to be high, however a softening
in the market is expected to put downward pressure on lease rates as cars come
up for renewal. Lease rates in this market are showing signs of weakness and has
lead to lower contribution to the Partnership as existing leases expire and
renewal leases are negotiated.
Several factors may affect the Partnership's operating performance in 2001 and
beyond, including changes in the markets for the Partnership's equipment and
changes in the regulatory environment in which that equipment operates.
Liquidation of the Partnership's equipment represents a reduction in the size of
the equipment portfolio and may result in a reduction of contribution to the
Partnership. The other factor affecting the Partnership's contribution in 2001
and beyond included:
The ability of the Partnership to realize acceptable lease rates on its
equipment in the different equipment markets is contingent on many factors, such
as specific market conditions and economic activity, technological obsolescence,
and government or other regulations. The unpredictability of these factors, or
of their occurrence, makes it difficult for the General Partner to clearly
define trends or influences that may impact the performance of the Partnership's
equipment. The General Partner continually monitors both the equipment markets
and the performance of the Partnership's equipment in these markets. The General
Partner may 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 2001 as existing leases expire, exposing the Partnership to some
repricing risk/opportunity. Additionally, the Partnership entered its
liquidation phase on January 1, 1999, and has commenced an orderly liquidation
of the Partnership's assets. 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.
(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 2000, 26% of the Partnership's total lease revenues from
wholly-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 FINANCIAL SERVICES, INC.
As of the date of this annual report, the directors and executive officers of
PLM Financial Services, Inc. (and key executive officers of its subsidiaries)
are as follows:
Name Age Position
- ----------------- ----- -------------------------------------------------------
Stephen M. Bess 54 President, PLM Investment Management, Inc.;
Vice President and Director,
PLM Financial Services, Inc.
Richard K Brock 38 Vice President and Chief Financial Officer,
PLM International,Inc. and PLM Financial Services, Inc.
Director Financial Services Inc.
Susan C. Santo 38 Vice President, Secretary, and General Counsel, PLM
International, Inc. and PLM Financial Services, Inc.
Director Financial Services Inc.
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 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 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, 2000.
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, 2000, 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 2000, management fees to IMI were $0.3 million. During 2000, the
Partnership reimbursed FSI and its affiliates $0.2 million for
administrative services and data processing expenses performed on behalf of
the Partnership.
During 2000, the Partnership's proportional share of the USPE's
administrative services and data processing expenses paid or accrued to FSI
or its affiliates was $2,000.
(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.
2. Financial Statements required under Regulation S-X Rule 3-09.
The following financial statements are filed as exhibits of the
Annual Report on Form 10-K.
a East West 925
(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.
24. Powers of Attorney.
Financial Statements required under Regulation S-X Rule 3-09.
99.1 East West 925
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 12, 2001 PLM EQUIPMENT GROWTH FUND II
PARTNERSHIP
By: PLM Financial Services, Inc.
General Partner
By: /s/ Stephen M. Bess
Stephen M. Bess
President and
Chief Executive Officer
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
*_____________________
Stephen M. Bess Director, FSI March 12, 2001
*_____________________
Richard K Brock Director, FSI March 12, 2001
*_____________________
Susan C. Santo Director, FSI March 12, 2001
* 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 23
Balance sheets as of December 31, 2000 and 1999 24
Statements of income for the years ended
December 31, 2000, 1999, and 1998 25
Statements of changes in partners' capital for the years
ended December 31, 2000, 1999, and 1998 26
Statements of cash flows for the years ended
December 31, 2000, 1999, and 1998 27
Notes to financial statements 28-36
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 auditing standards generally
accepted in the United State of America. 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, 2000 and 1999, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America.
SAN FRANCISCO, CALIFORNIA
March 2, 2001
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31,
(in thousands of dollars, except unit amounts)
2000 1999
---------------------------------
ASSETS
Equipment held for operating lease, at cost $ 24,727 $ 32,487
Less accumulated depreciation (20,483) (25,815)
---------------------------------
Net equipment 4,244 6,672
Cash and cash equivalents 2,538 894
Accounts receivable, less allowance for doubtful
accounts of $57 in 2000 and $107 in 1999 718 877
Investment in an unconsolidated special-purpose entity -- 368
Prepaid expenses and other assets 35 47
-----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 7,535 $ 8,858
=================================
Liabilities and partners' capital
Liabilities
Accounts payable and accrued expenses $ 482 $ 352
Due to affiliates 52 67
Lessee deposits and reserve for repairs 449 783
---------------------------------
Total liabilities 983 1,202
---------------------------------
Partners' capital
Limited partners (7,381,475 depositary units as of
December 31, 2000 and 1999) 6,552 7,656
General Partner -- --
---------------------------------
Total partners' capital 6,552 7,656
---------------------------------
Total liabilities and partners' capital $ 7,535 $ 8,858
=================================
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)
2000 1999 1998
REVENUES --------------------------------------------
Lease revenue $ 5,338 $ 5,949 $ 7,355
Interest and other income 92 90 222
Net gain on disposition of equipment 2,448 328 5,990
--------------------------------------------
Total revenues 7,878 6,367 13,567
EXPENSES
Depreciation 1,581 1,933 2,413
Repairs and maintenance 1,915 1,537 1,890
Equipment operating expenses 119 120 65
Insurance expense 67 42 82
Management fees to affiliate 269 295 369
Interest expense -- -- 47
General and administrative expenses to affiliate 234 271 428
Other general and administrative expenses 848 757 807
(Recovery of ) provision for bad debt (58) 30 (49)
-------------------------------------------------------------------------------------------------------------------
--------------------------------------------
Total expenses 4,975 4,985 6,052
Equity in net income (loss) of unconsolidated
special-purpose entities 1,304 (448) (1,484)
--------------------------------------------
Net income $ 4,207 $ 934 $ 6,031
============================================
PARTNERS' SHARE OF NET INCOME
Limited partners $ 3,942 $ 707 $ 5,606
General Partner 265 227 425
-------------------------------------------------------------------------------------------------------------------
Total $ 4,207 $ 934 $ 6,031
============================================
Limited Partner's net income per weighted-average depositary unit
$ 0.53 $ 0.10 $ 0.76
===================================================================================================================
Cash distribution $ 4,534 $ 4,545 $ 4,604
Special cash distribution 777 -- 3,885
-------------------------------------------------------------------------------------------------------------------
Total distribution $ 5,311 $ 4,545 $ 8,489
===================================================================================================================
Per weighted-average depositary unit:
Cash distribution $ 0.58 $ 0.58 $ 0.59
Special cash distribution 0.10 -- 0.50
-------------------------------------------------------------------------------------------------------------------
Total distribution $ 0.68 $ 0.58 $ 1.09
============================================
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, 2000, 1999, AND 1998
(in thousands of dollars)
Limited General
Partners Partner Total
--------------------------------------------------
Partners' capital (deficit) 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
Net income 3,942 265 4,207
Cash distribution (4,308) (226) (4,534)
Special distribution (738) (39) (777)
----------------------------------------------------------------------------------------------------------------
Partners' capital as of December 31, 2000 $ 6,552 -- $ 6,552
==================================================
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 2000 1999 1998
--------------------------------------------
Net income $ 4,207 $ 934 $ 6,031
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 1,581 1,933 2,413
Net gain on disposition of equipment (2,448) (328) (5,990)
Equity in net (loss) income of unconsolidated special-purpose
entities (1,304) 448 1,484
Changes in operating assets and liabilities:
Restricted cash -- -- 395
Accounts receivable, net 158 125 684
Prepaid expenses and other assets 12 (17) 19
Accounts payable and accrued expenses 130 -- (13)
Due to affiliates (15) (16) (112)
Lessee deposits and reserve for repairs (334) 11 (1,074)
--------------------------------------------
Net cash provided by operating activities 1,987 3,090 3,837
--------------------------------------------
Investing activities
Proceeds from disposition of equipment 3,297 691 7,880
Distribution from liquidation of unconsolidated
special-purpose entities 1,824 -- 1,425
Additional investments in unconsolidated special-purpose
entities (155) (322) (723)
Payments for capital improvements -- (6) --
-------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 4,968 363 8,582
--------------------------------------------
Financing activities
Principal payments on notes payable -- (2,500)
Cash distribution paid to limited partners (4,308) (4,318) (8,064)
Cash distribution paid to General Partner (226) (227) (425)
Special distribution paid to limited partners (738) -- --
Special distribution paid to General Partner (39) -- --
-------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (5,311) (4,545) (10,989)
--------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,644 (1,092) 1,430
Cash and cash equivalents at beginning of year 894 1,986 556
--------------------------------------------
Cash and cash equivalents at end of year $ 2,538 $ 894 $ 1,986
============================================
Supplemental information
Interest paid $ -- $ -- $ 47
===================================================================================================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND II
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
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 were capitalized and amortized over the original term of the lease.
PLM EQUIPMENT GROWTH FUND II
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
1. BASIS OF PRESENTATION (CONTINUED)
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 other types of equipment.
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 2000,
1999 or 1998.
Equipment held for operating leases is stated at cost.
INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITIES
The Partnership had an interest in an unconsolidated special-purpose entity
(USPE) that owned an aircraft. This interest was accounted for using the
equity method. This aircraft was sold in the first quarter of 2000.
The Partnership's investment in USPEs included 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 were 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 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.
PLM EQUIPMENT GROWTH FUND II
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
1. BASIS OF PRESENTATION (CONTINUED)
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 2000, the General Partner received a special
allocation of income of $0.1 million ($0.2 million in 1999 and $0.1 million
in 1998).
Cash distributions are recorded when paid. Cash distributions relating to
the fourth quarter of 2000, 1999, and 1998 of $1.1 million ($0.15 per
weighted-average depositary unit) were paid during the first quarter of
2001, 2000, and 1999.
Cash distributions to investors in excess of net income are considered a
return of capital. Cash distributions to the limited partners of $1.1
million, $3.6 million, and $2.5 million in 2000, 1999, and 1998,
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, 2000, 1999, and 1998 were 7,381,475.
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 was equal to comprehensive income for the
years ended December 31, 2000, 1999, and 1998.
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,
2000 and 1999. The Partnership reimbursed FSI and its affiliates $0.2
million, $0.3 million, and $0.4 million in 2000, 1999, and 1998,
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 $2,000, $6,000, and $12,000 during 2000, 1999 and 1998,
respectively.
PLM EQUIPMENT GROWTH FUND II
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
3. EQUIPMENT
The components of owned equipment as of December 31, were as follows (in
thousands of dollars):
EQUIPMENT HELD FOR OPERATING LEASES 2000 1999
----------------------------------
Railcars $ 12,712 16,249
Trailers 9,510 10,606
Marine containers 2,505 5,632
----------------------------------
24,727 32,487
Less accumulated depreciation (20,483) (25,815)
----------------------------------
Net equipment $ 4,244 6,672
==================================
Revenues are earned under operating leases. 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.
As of December 31, 2000, all owned equipment in the Partnership portfolio
was on lease, except for 203 railcars and 106 marine containers with an
aggregate net book value of $0.4 million. 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.
During 2000, the General Partner disposed of marine containers, trailers,
and railcars owned by the Partnership, with an aggregate net book value of
$0.8 million, for proceeds of $3.3 million. During 1999, the General
Partner disposed of aircraft, 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.
There were no reductions to the carrying values of equipment in 2000, 1999,
or 1998.
All owned equipment on lease is being accounted for as operating leases.
Future minimum rents under noncancelable operating leases as of December
31, 2000 during each of the next five years are approximately $0.9 million
in 2001, $0.3 million in 2002, $0.2 million in 2003, $0.2 million in 2004,
$14,000 in 2005 and $0 thereafter. Per diem and short-term rentals
consisting of utilization rate lease payments included in revenue amounted
to approximately $2.0 million, $2.5 million, and $3.7 million in 2000,
1999, and 1998, respectively.
PLM EQUIPMENT GROWTH FUND II
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
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):
2000 1999 1998
-------- -------- --------
Net Net Net
Total Interest of Total Interest of Total Interest of
USPE Partnership USPEs Partnership USPEs Partnership
----------------------------------------------------------------------------------------------------------
----------------------
Net investments $ -- $ -- $ 739 $ 368 $ 992 $ 494
----------------------
Net income (loss) 2,605 1,304 (900) (448) (3,028) (1,484)
----------------------
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 as of December 31, 1999. This aircraft was sold in the first
quarter of 2000 and the Partnership received liquidating proceeds from the
sale of $1.8 million for it's net investment of $0.3 million. 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 in 1999.
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 or operated 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, 2000
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, 2000 LEASING LEASING LEASING LEASING OTHER(1) TOTAL
------------------------------------ ------- ------- ------- ------- ------ -----
Revenues
Lease revenue $ -- $ 81 $ 1,945 $ 3,312 $ -- $ 5,338
Interest income and other -- -- -- 6 86 92
Net gain on disposition of 182 301 1,965 -- 2,448
equipment
--------------------------------------------------------------
Total revenues -- 263 2,246 5,283 86 7,878
Expenses
Operations support -- 6 728 1,329 38 2,101
Depreciation -- 206 648 727 -- 1,581
Management fee -- 4 98 167 -- 269
General and administrative expenses 4 6 332 205 535 1,082
(Recovery of) provision for bad -- -- (21) (27) (10) (58)
debts
--------------------------------------------------------------
Total costs and expenses 4 222 1,785 2,401 563 4,975
--------------------------------------------------------------
Equity in net income of USPE 1,304 -- -- -- -- 1,304
--------------------------------------------------------------
--------------------------------------------------------------
Net income (loss) $ 1,300 $ 41 $ 461 $ 2,882 $ (477) $ 4,207
==============================================================
As of December 31, 2000
Total assets $ -- $ 107 $ 3,580 $ 1,275 $ 2,573 $ 7,535
==============================================================
- ----------
(1) Includes interest income and costs not identifiable to a particular segment
such as certain operations support and general and administrative expenses.
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 47 (67) 161 187 328
equipment
-------------------------------------------------------------
Total revenues 47 96 2,375 3,772 77 6,367
Expenses
Operations support -- 3 674 1,001 21 1,699
Depreciation -- 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 debts -- (1) 10 21 -- 30
-------------------------------------------------------------
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
=============================================================
PLM EQUIPMENT GROWTH FUND II
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
5. OPERATING SEGMENTS (CONTINUED)
MARINE
AIRCRAFT CONTAINER TRAILER RAILCAR ALL
FOR THE YEAR ENDED DECEMBER 31, 1998 LEASING LEASING LEASING LEASING OTHER2 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 4,835 (21) 775 401 -- 5,990
equipment
--------------------------------------------------------------
Total revenues 4,918 233 3,576 4,627 213 13,567
Expenses
Operations support 36 5 727 1,229 40 2,037
Depreciation 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 debts (72) -- 11 12 -- (49)
--------------------------------------------------------------
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
==============================================================
- ----------
2 Includes interest income and costs not identifiable to a particular segment
such as interest expense and certain operations support and general and
administrative 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 2000 1999 1998
------------------------------ ----------------------------------------
United States $ 3,956 $ 4,350 $ 5,680
Canada 1,301 1,436 1,424
Rest of the world 81 163 251
----------------------------------------
Lease revenues $ 5,338 $ 5,949 $ 7,355
========================================
PLM EQUIPMENT GROWTH FUND II
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
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 2000 1999 1998 2000 1999 1998
------------------------------------ --------------------------------------- -------------------------------------
United States $ 2,661 $ 1,278 $ 3,270 $ -- $ -- $ --
Canada 679 767 1,162 -- -- --
Europe -- -- 3,702 -- -- --
South Asia -- -- -- 1,304 (448) (1,484)
Rest of the world 42 (258) (182) -- -- --
--------------------------------------- -------------------------------------
Regional income (loss) 3,382 1,787 7,952 1,304 (448) (1,484)
Administrative and other (479) (405) (437) -- -- --
--------------------------------------- -------------------------------------
Net income (loss) $ 2,903 $ 1,382 $ 7,515 $ 1,304 $ (448) $ (1,484)
======================================= =====================================
The net book value of these assets as of December 31, are as follows
(in thousands of dollars):
Owned Equipment Investments in USPEs
------------------------------------ -------------------------------------
Region 2000 1999 1998 2000 1999 1998
-------------------------- ------------------------------------ -------------------------------------
United States $ 3,743 $ 5,372 $ 7,014 $ -- $ -- $ --
Canada 432 614 809 -- -- --
South Asia -- -- -- -- 368 494
Rest of the world 69 686 1,166 -- -- --
---------------------------------- -------------------------------------
---------------------------------- -------------------------------------
Net book value $ 4,244 $ 6,672 $ 8,989 $ -- $ 368 $ 494
================================== =====================================
7. CONCENTRATIONS OF CREDIT RISK
No single lessee accounted for more than 10% of the consolidated revenues
for the years ended December 31, 2000, 1999 and 1998. In 2000, however the
Partnership sold its remaining investment in a USPE in which it had a 50%
interest in an aircraft to Aegro Capital. The gain from this sale accounted
for 14% of the Partnership's revenues from wholly-owned equipment in 2000.
In 1998, Sabre Airways purchased a commercial aircraft from the Partnership
and the gain from the sale accounted for 27% of total consolidated revenues
from wholly and partially owned equipment during 1998.
As of December 31, 2000 and 1999, 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, 2000, the federal income tax basis was higher than the
financial statement carrying values of certain assets and liabilities by
$12.9 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, 2000
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.
10. 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 be made from time to
time. The amounts reflected for assets and liabilities of the Partnership
have not been adjusted to reflect liquidation values. The equipment
portfolio continues to be carried at the lower of depreciated cost or fair
value less cost to dispose. Although the General Partner estimates that
there will be distributions after liquidation of assets and liabilities,
the amounts cannot be accurately determined prior to actual liquidation of
the equipment. Any excess proceeds over expected Partnership obligations
will be distributed to the Partners throughout the liquidation period. Upon
final liquidation, the Partnership will be dissolved.
Special distribution of $0.8 million and $3.9 million were paid in 2000 and
1998, respectively. No special distributions were paid in 1999. In 2000 and
1998, the General Partner paid special distributions of $0.10 and $0.50 per
weighted-average depositary unit respectively. 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.
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended December 31, 2000 (in thousands of dollars, except per share
amounts):
March June September December
31, 30, 30, 31, Total
----------------------------------------------------------------------------
Operating results:
Total revenues $ 1,494 1,910 $ 1,590 $ 2,884 $ 7,878
Net income 1,592 624 508 1,483 4,207
Per weighted-average
depositary unit:
Limited partners'
net income $ 0.21 0.07 $ 0.06 $ 0.19 $ 0.53
PLM EQUIPMENT GROWTH FUND II
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
The following is a summary of the quarterly results of operations for the
years ended December 31, 1999 (in thousands of dollars, except per share
amounts):
March June September December
31, 30, 30, 31, Total
----------------------------------------------------------------------------
Operating results:
Total revenues $ 1,633 1,520 $ 1,522 $ 1,692 $ 6,367
Net income 222 134 244 334 934
Per weighted-average
depositary unit:
Limited partners'
net income $ 0.02 0.01 $ 0.03 $ 0.04 $ 0.10
12. SUBSEQUENT EVENT
In February 2001, PLM International, the parent of the Partnership,
announced that MILPI Acquisition Corp. (MILPI) completed its cash tender
offer for the outstanding common stock of PLM International. To date, MILPI
has acquired 83% of the common shares outstanding. MILPI will complete its
acquisition of PLM International by effecting a merger of MILPI into PLM
International under Delaware law. The merger is expected to be completed
after MILPI obtains approval of the merger by PLM International's
shareholders pursuant to a special shareholders' meeting which is expected
to be held during the first half of 2001.
(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.
24. Powers of Attorney 39-41
99. 1 East West 925.
__________________________
*Incorporated by reference. See page 20 of this report.