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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-10553
_______________________
PLM EQUIPMENT GROWTH FUND II
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3041013
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 CARILLON PARKWAY SUITE 200
ST. PETERSBURG, FL 33716
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (727) 803-8200
_______________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ______
----
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
CONDENSED BALANCE SHEETS
(in thousands of dollars, except unit amounts)
(unaudited)
September 30, December 31,
2002 2001
-------------------------------
ASSETS
Equipment held for operating lease, at cost. . . . . . . . . . $ 16,874 $ 21,119
Less accumulated depreciation. . . . . . . . . . . . . . . . . (14,667) (18,146)
--------------- --------------
Net equipment. . . . . . . . . . . . . . . . . . . . . . . . 2,207 2,973
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . 3,847 1,958
Accounts receivable, less allowance for doubtful accounts
of $47 in 2002 and $89 in 2001 . . . . . . . . . . . . . . 395 584
Prepaid expenses and other assets. . . . . . . . . . . . . . . 42 18
--------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $ 6,491 $ 5,533
=============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses. . . . . . . . . . . . . $ 342 $ 260
Due to affiliates. . . . . . . . . . . . . . . . . . . . . . . 30 42
--------------- --------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . 372 302
--------------- --------------
Partners' capital:
Limited partners (7,381,265 depositary units in 2002 and 2001) 6,119 5,231
General Partner. . . . . . . . . . . . . . . . . . . . . . . . -- --
--------------- --------------
Total partners' capital. . . . . . . . . . . . . . . . . . . 6,119 5,231
--------------- --------------
Total liabilities and partners' capital. . . . . . . . . $ 6,491 $ 5,533
=============== ==============
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
CONDENSED STATEMENTS OF OPERATIONS
(in thousands of dollars, except weighted-average unit amounts)
(unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2002 2001 2002 2001
--------------------- ------------------------
REVENUES
Lease revenue. . . . . . . . . . . . . . . $ 651 $ 656 $ 1,857 $ 2,021
Interest and other income. . . . . . . . . 14 9 35 50
Gain on disposition of equipment . . . . . 35 153 1,251 343
---------- --------- ----------- -----------
Total revenues . . . . . . . . . . . . 700 818 3,143 2,414
---------- --------- ----------- -----------
EXPENSES
Depreciation . . . . . . . . . . . . . . . 215 284 673 867
Repairs and maintenance. . . . . . . . . . 338 266 814 1,081
Equipment operating expenses . . . . . . . 30 30 99 91
Insurance expense. . . . . . . . . . . . . 20 17 59 97
Management fees to affiliate . . . . . . . 33 32 94 93
General and administrative expenses
to affiliates. . . . . . . . . . . . 21 23 58 158
Other general and administrative expenses. 182 136 474 560
Provision for (recovery of) bad debts. . . 4 10 (16) 153
---------- --------- ----------- -----------
Total expenses . . . . . . . . . . . . 843 798 2,255 3,100
---------- --------- ----------- -----------
Net income (loss). . . . . . . . . . . . . $ (143) $ 20 $ 888 $ (686)
========== ========= =========== ===========
PARTNERS' SHARE OF NET INCOME (LOSS):
Limited partners . . . . . . . . . . . . . $ (143) $ 20 $ 888 $ (754)
General Partner. . . . . . . . . . . . . . -- -- -- 68
---------- --------- ----------- -----------
Total. . . . . . . . . . . . . . . . . . . $ (143) $ 20 $ 888 $ (686)
========== ========= =========== ===========
Limited partners' net income (loss) per
weighted-average depositary unit . . $ (0.02) $ -- $ 0.12 $ (0.10)
========== ========= =========== ===========
Cash distributions . . . . . . . . . . . . $ -- $ -- $ -- $ 1,363
========== ========= =========== ===========
Cash distributions per limited partners'
weighted-average depositary unit . . $ -- $ -- $ -- $ 0.18
========== ========= =========== ===========
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
CONDENSED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD FROM DECEMBER 31, 2000 TO SEPTEMBER 30, 2002
(in thousands of dollars)
(unaudited)
Limited General
Partners Partner Total
========== ========= ========
Partners' capital as of December 31, 2000. $ 6,552 $ -- $ 6,552
Net (loss) income. . . . . . . . . . . . . . (26) 68 42
Cash distribution. . . . . . . . . . . . . . (1,295) (68) (1,363)
---------- --------- --------
Partners' capital as of December 31, 2001. 5,231 -- 5,231
---------- --------- --------
Net income . . . . . . . . . . . . . . . . . 888 -- 888
---------- --------- --------
Partners' capital as of September 30, 2002 $ 6,119 $ -- $ 6,119
========== ========= ========
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
For the Nine Months
Ended September 30,
2002 2001
-------------------
OPERATING ACTIVITIES
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . $ 888 $ (686)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 673 867
(Recovery of) provision for bad debt. . . . . . . . . . . . . (16) 153
Net gain on disposition of equipment . . . . . . . . . . . . . (1,251) (343)
Changes in operating assets and liabilities:
Accounts receivable, net . . . . . . . . . . . . . . . . . . 195 99
Prepaid expenses and other assets. . . . . . . . . . . . . . (24) 13
Accounts payable and accrued expenses. . . . . . . . . . . . 82 (229)
Due to affiliates. . . . . . . . . . . . . . . . . . . . . . (12) (18)
Lessee deposits and reserve for repairs. . . . . . . . . . . -- (237)
--------- --------
Net cash provided by (used in) operating activities. . . . 535 (381)
--------- --------
INVESTING ACTIVITIES
Proceeds from disposition of equipment . . . . . . . . . . . . . 1,354 374
--------- --------
Net cash provided by investing activities. . . . . . . . . 1,354 374
--------- --------
FINANCING ACTIVITIES
Cash distribution paid to limited partners . . . . . . . . . . . -- (1,295)
Cash distribution paid to General Partner. . . . . . . . . . . . -- (68)
--------- --------
Net cash used in financing activities. . . . . . . . . . . -- (1,363)
--------- --------
Net increase (decrease) in cash and cash equivalents . . . . . . 1,889 (1,370)
Cash and cash equivalents at beginning of period . . . . . . . . 1,958 2,538
--------- --------
Cash and cash equivalents at end of period . . . . . . . . . . . $ 3,847 $ 1,168
========= ========
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Opinion of Management
-----------------------
In the opinion of the management of PLM Financial Services, Inc. (FSI or the
General Partner), the accompanying unaudited condensed financial statements
contain all adjustments necessary, consisting primarily of normal recurring
accruals, to present fairly the unaudited condensed financial position of PLM
Equipment Growth Fund II (the Partnership) as of September 30, 2002 and December
31, 2001, the unaudited condensed statements of operations for the three and
nine months ended September 30, 2002 and 2001, the unaudited condensed
statements of changes in partners' capital for the period from December 31, 2000
to September 30, 2002, and the unaudited condensed statements of cash flows for
the nine months ended September 30, 2002 and 2001. Certain information and note
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted from the accompanying condensed financial
statements. For further information, reference should be made to the financial
statements and notes thereto included in the Partnership's Annual Report on Form
10-K for the year ended December 31, 2001, on file at the Securities and
Exchange Commission.
2. Schedule of Partnership Phases
---------------------------------
The Partnership, in accordance with its limited partnership agreement, entered
its liquidation phase on January 1, 1999, and has commenced an orderly
liquidation of the Partnership's assets. The Partnership will terminate on
December 31, 2006, unless terminated earlier upon the sale of all equipment or
by certain other events. The General Partner may no longer reinvest cash flows
and surplus funds in equipment. All future cash flows and surplus funds, if
any, are to be used for distributions to partners, except to the extent used to
maintain reasonable reserves. During the liquidation phase, the Partnership's
assets will continue to be recorded at the lower of the carrying amount or fair
value less cost to sell.
3. Cash Distribution
------------------
Cash distributions are recorded when paid and may include amounts in excess of
net income that are considered a return of capital. No cash distributions were
paid to the limited partners during the three months ended September 30, 2002
and 2001 and during the nine months ended September 30, 2002. For the nine
months ended September 30, 2001, cash distributions totaled $1.4 million. Cash
distributions to the limited partners of $1.3 million for the nine months ended
September 30, 2001, were deemed to be a return of capital.
4. Transactions with General Partner and Affiliates
-----------------------------------------------------
The balance due to affiliates as of September 30, 2002 and December 31, 2001 of
$30,000 and $42,000, respectively, is a payable due to FSI and its affiliate for
management fees.
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
5. Equipment
---------
Owned equipment held for operating leases is stated at cost. The components of
owned equipment were as follows (in thousands of dollars):
September 30, December 31,
2002 2001
=============== ==============
Trailers. . . . . . . . . . . $ 9,403 $ 9,404
Railcars. . . . . . . . . . . 7,098 10,705
Marine containers . . . . . . 373 1,010
--------------- --------------
16,874 21,119
Less accumulated depreciation (14,667) (18,146)
--------------- --------------
Net equipment . . . . . $ 2,207 $ 2,973
=============== ==============
As of September 30, 2002, all equipment was on lease, except for 19 marine
containers and 49 railcars with an aggregate net book value of $26,000. As of
December 31, 2001, all equipment was on lease, except for 223 railcars and 7
marine containers with an aggregate net book value of $0.2 million.
For the nine months ended September 30, 2002, the Partnership disposed of marine
containers, railcars and trailers with an aggregate net book value of $0.1
million for proceeds of $1.4 million. During the nine months ended September
30, 2001, the Partnership sold or disposed of marine containers, trailers, and
railcars, with an aggregate net book value of $41,000, for proceeds of $0.4
million.
6. Operating Segments
-------------------
The Partnership operates or operated in four different segments: aircraft
leasing, marine container leasing, trailer leasing and railcar leasing. Each
equipment leasing segment engages in short-term to mid-term operating leases to
a variety of customers. The following tables present a summary of the operating
segments (in thousands of dollars):
Marine
For the three months ended Container Trailer Railcar All
September 30, 2002 Leasing Leasing Leasing Other 1 Total
- --------------------------------------------------------------------------------------------
REVENUES
Lease revenue. . . . . . . . . . . . . $ 1 $ 353 $ 297 $ -- $ 651
Interest income and other. . . . . . . -- -- -- 14 14
Loss on disposition of equipment . . . 14 13 8 -- 35
---------- --------- -------- --------- -------
Total revenues. . . . . . . . . . . 15 366 305 14 700
---------- --------- -------- --------- -------
COSTS AND EXPENSES
Operations support . . . . . . . . . . -- 300 73 15 388
Depreciation . . . . . . . . . . . . . 1 132 82 -- 215
Management fees to affiliates. . . . . -- 18 15 -- 33
General and administrative expenses. . -- 73 29 101 203
Provision for (recovery of) bad debts. -- -- 4 -- 4
---------- --------- -------- --------- -------
Total costs and expenses . . . . . 1 523 203 116 843
---------- --------- -------- --------- -------
Net income (loss). . . . . . . . . . . . $ 14 $ (157) $ 102 $ (102) $ (143)
========== ========= ======== ========= =======
Total assets as of September 30, 2002. . $ 28 $ 2,436 $ 137 $ 3,890 $6,491
========== ========= ======== ========= =======
________________________
1 Includes certain assets not identifiable to a particular segment, such as cash
and prepaid expenses. Also includes interest income and costs not identifiable
to a particular segment, such as certain operations support and general and
administrative expenses.
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
6. Operating Segments (continued)
-------------------
Marine
For the three months ended Container Trailer Railcar All
September 30, 2001 Leasing Leasing Leasing Other 1 Total
- --------------------------------------------------------------------------------------------
REVENUES
Lease revenue. . . . . . . . . . . . . $ (2) $ 414 $ 244 $ -- $ 656
Interest income and other. . . . . . . -- -- -- 9 9
Gain on disposition of equipment . . . 132 14 7 -- 153
----------- -------- --------- --------- ------
Total revenues. . . . . . . . . . . 130 428 251 9 818
----------- -------- --------- --------- ------
COSTS AND EXPENSES
Operations support . . . . . . . . . . -- 198 99 16 313
Depreciation . . . . . . . . . . . . . 1 133 150 -- 284
Management fees to affiliates. . . . . -- 21 11 -- 32
General and administrative expenses. . -- 75 24 60 159
Provision for (recovery of) bad debts. (9) -- 19 -- 10
----------- -------- --------- --------- ------
Total costs and expenses . . . . . (8) 427 303 76 798
----------- -------- --------- --------- ------
Net income (loss). . . . . . . . . . . . $ 138 $ 1 $ (52) $ (67) $ 20
=========== ======== ========= ========= ======
Marine
For the nine months ended Container Trailer Railcar All
September 30, 2002 Leasing Leasing Leasing Other 1 Total
- -----------------------------------------------------------------------------------------------
REVENUES
Lease revenue. . . . . . . . . . . . . . $ 1 $ 1,077 $ 779 $ -- $1,857
Interest income and other. . . . . . . . -- -- -- 35 35
Gain (loss) on disposition of equipment. 22 9 1,220 -- 1,251
---------- --------- --------- --------- -------
Total revenues. . . . . . . . . . . . 23 1,086 1,999 35 3,143
---------- --------- --------- --------- -------
COSTS AND EXPENSES
Operations support . . . . . . . . . . . -- 756 170 46 972
Depreciation . . . . . . . . . . . . . . 3 394 276 -- 673
Management fees to affiliates. . . . . . -- 53 41 -- 94
General and administrative expenses. . . -- 213 83 236 532
Provision for (recovery of) bad debts. . -- 25 (41) -- (16)
---------- --------- --------- --------- -------
Total costs and expenses . . . . . . 3 1,441 529 282 2,255
---------- --------- --------- --------- -------
Net income (loss). . . . . . . . . . . . . $ 20 $ (355) $ 1,470 $ (247) $ 888
========== ========= ========= ========= =======
Marine
For the nine months ended Container Trailer Railcar Aircraft All
September 30, 2001 Leasing Leasing Leasing Leasing Other 1 Total
- ------------------------------------------------------------------------------------------------------------
REVENUES
Lease revenue. . . . . . . . . . . . . . $ (23) $ 1,184 $ 860 $ -- $ -- $2,021
Interest income and other. . . . . . . . -- -- -- -- 50 50
Gain (loss) on disposition of equipment. 328 15 10 (10) -- 343
----------- --------- --------- ---------- --------- -------
Total revenues. . . . . . . . . . . . 305 1,199 870 (10) 50 2,414
----------- --------- --------- ---------- --------- -------
COSTS AND EXPENSES
Operations support . . . . . . . . . . . -- 586 590 -- 93 1,269
Depreciation . . . . . . . . . . . . . . 19 395 450 -- -- 867
Management fees to affiliates. . . . . . (2) 59 36 -- -- 93
General and administrative expenses. . . 1 223 70 -- 424 718
Provision for (recovery of) bad debts. . 8 9 136 -- -- 153
----------- --------- --------- ---------- --------- -------
Total costs and expenses . . . . . . 26 1,275 1,282 -- 517 3,100
----------- --------- --------- ---------- --------- -------
Net income (loss). . . . . . . . . . . . . $ 279 $ (76) $ (412) $ (10) $ (467) $ (686)
=========== ========= ========= ========== ========= =======
1 Includes interest income and costs not identifiable to a particular segment,
such as certain operations
support and general and administrative expenses.
PLM EQUIPMENT GROWTH FUND II
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
7. Net Income (Loss) Per Weighted-Average Depositary Unit
------------------------------------------------------------
Net income (loss) per weighted-average depositary unit was computed by dividing
net income (loss) attributable to the limited partners by the weighted-average
number of depositary units deemed outstanding during the period. The
weighted-average number of depositary units deemed outstanding during the three
and nine months ended September 30, 2002 and 2001 was 7,381,265.
8 Liquidation
-----------
On January 1, 1999, the General Partner began the liquidation phase of the
Partnership and commenced an orderly liquidation of the Partnership assets.
Given the current economic environment, and offers received for similar types of
equipment owned by the Partnership, the General Partner has determined it would
not be advantageous to sell the remaining Partnership equipment at the current
time. The General Partner will continue to monitor the equipment markets to
determine an optimal time to sell. In the meantime, equipment will continue to
be leased, and re-leased at market rates as existing leases expire. The amounts
reflected for assets and liabilities of the Partnership have not been adjusted
to reflect liquidation values. The equipment portfolio continues to be carried
at the lower of depreciated cost or fair value less cost to dispose. Although
the General Partner estimates that there will be distributions after liquidation
of assets and liabilities, the amounts cannot be accurately determined prior to
actual liquidation of the equipment. Upon final liquidation, the Partnership
will be dissolved.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-------------------------------------------------------------------
RESULTS OF OPERATIONS
--- --------------
(I) RESULTS OF OPERATIONS
Comparison of the PLM Equipment Growth Fund II's (the Partnership's) Operating
- --------------------------------------------------------------------------------
Results for the Three Months Ended September 30, 2002 and 2001
- ------------------------------------------------------------------------
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating and insurance expenses) on owned equipment decreased during
the third quarter of 2002 compared to the same quarter of 2001. Gains or losses
from the sale of equipment, interest and other income and certain expenses such
as depreciation and general and administrative expenses relating to the
operating segments (see Note 6 to the unaudited condensed financial statements),
are not included in the owned equipment operation discussion because they are
indirect in nature and not a result of operations but the result of owning a
portfolio of equipment. The following table presents lease revenues less direct
expenses by segment (in thousands of dollars):
For the Three Months
Ended September 30,
2002 2001
=====================
Railcars. . . . . $ 224 $ 145
Trailers. . . . . 53 216
Marine containers 1 (2)
Railcars: Railcar lease revenues and direct expenses were $0.3 million and $0.1
million, respectively, for the third quarter of 2002, compared to $0.2 million
and $0.1 million, respectively, during the same quarter of 2001. Lease revenue
increased $0.1 million due to fewer cars being off-lease in the three months
ended September 30, 2002 compared to the same period of 2001.
Trailers: Trailer lease revenues and direct expenses were $0.4 million and
$0.3 million, respectively, for the third quarter of 2002, compared to $0.4
million and $0.2 million, respectively, during the same quarter of 2001.
Trailer lease revenue decreased $0.1 million in the three months ended September
30, 2002 compared to the same period of 2001 due to lower utilization on the
Partnership's trailer fleet.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses were $0.5 million for the third quarter of 2002 and
2001. Significant variances are explained as follows:
(i) A $0.1 million decrease in depreciation expense from 2001 levels
reflects the effect of asset dispositions in 2002 and 2001.
(ii) A $44,000 increase in the general and administrative expenses was due to
increased professional services costs.
(C) Gain on Disposition of Owned Equipment
Gain on disposition of equipment in the third quarter of 2002 totaled $35,000,
and resulted from the disposition of railcars and marine containers. Gain on
disposition of equipment for the third quarter of 2001 totaled $0.2 million, and
resulted from the sale of marine containers, railcars, and trailers, with an
aggregate net book value of $19,000, for proceeds of $0.2 million.
(D) Net Income (Loss)
As a result of the foregoing, the Partnership's net loss was $0.1 million for
the third quarter of 2002, compared to net income of $20,000 during the third
quarter of 2001. The Partnership's ability to operate and liquidate assets,
secure leases, and re-lease those assets whose leases expire is subject to many
factors, and the Partnership's performance in the third quarter of 2002 is not
necessarily indicative of future periods.
Comparison of the Partnership's Operating Results for the Nine months Ended
- --------------------------------------------------------------------------------
September 30, 2002 and 2001
- -------------------------------
(A) Owned Equipment Operations
Lease revenues less direct expenses on owned equipment increased during the nine
months ended September 30, 2002 compared to the same period of 2001. The
following table presents lease revenues less direct expenses by segment (in
thousands of dollars):
For the Nine Months
Ended September 30,
2002 2001
===================
Railcars. . . . . $ 609 $ 270
Trailers. . . . . 321 598
Marine containers 1 (23)
Railcars: Railcar lease revenues and direct expenses were $0.8 million and $0.2
million, respectively, for the nine months ended September 30, 2002, compared to
$0.9 million and $0.6 million, respectively, during the same period of 2001.
Lease revenue decreased $0.1 million due to the disposition of railcars in 2001
and 2002. Direct expenses decreased $0.4 million in the nine months ended
September 30, 2002 compared to the same period of 2001 due to fewer repairs
being required for the railcar portfolio in 2002.
Trailers: Trailer lease revenues and direct expenses were $1.1 million and
$0.8 million, respectively, for the nine months ended September 30, 2002,
compared to $1.2 million and $0.6 million, respectively, during the same period
of 2001. Trailer lease revenues decreased $0.1 million in the nine months ended
September 30, 2002 compared to the same period of 2001 due to lower utilization
on the Partnership's trailer fleet. Trailer direct expenses increased $0.2
million in the nine months ended September 30, 2002 compared to 2001 due to
increased repair and maintenance costs in 2002.
Marine containers: Marine container lease revenues were $1,000 and $(23,000)
in the nine months ended September 30, 2002 and 2001, respectively. The
negative $23,000 of lease revenues in the nine months ended September 30, 2001
resulted from actual lease revenue in previous periods being lower than was
previously accrued. The Partnership has been disposing of marine containers in
2001 and 2002.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $1.3 million for the nine months ended September 30,
2002 decreased from $1.9 million for the same period in 2001. Significant
variances are explained as follows:
(i) A $0.2 million decrease in general and administrative expenses
during the nine months ended September 30, 2002 resulted from the reduction in
the size of the Partnership's equipment portfolio over the last twelve months.
(ii) A $0.2 million decrease in the provision for bad debts due to fewer
receivables being reserved for as bad debts in the nine months ended September
30, 2002 compared to the same period of 2001.
(iii) A $0.2 million decrease in depreciation expense from 2001 levels
reflects the effect of asset dispositions in 2002 and 2001.
(C) Gain on Disposition of Owned Equipment
Gain on disposition of equipment in the nine months ended September 30, 2002
totaled $1.3 million, and resulted from the disposition of marine containers,
railcars and trailers with an aggregate net book value of $0.1 million for
aggregate proceeds of $1.4 million. Gain on disposition of equipment for the
nine months ended September 30, 2001 totaled $0.3 million, and resulted from the
sale of marine containers, trailers, and railcars, with an aggregate net book
value of $41,000, for proceeds of $0.4 million.
(D) Net Income (Loss)
As a result of the foregoing, the Partnership's net income was $0.9 million for
the nine months ended September 30, 2002, compared to net loss of $0.7 million
during the nine months ended September 30, 2001. The Partnership's ability to
operate and liquidate assets, secure leases, and re-lease those assets whose
leases expire is subject to many factors, and the Partnership's performance in
the nine months ended September 30, 2002 is not necessarily indicative of future
periods.
(II) CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the General Partner
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On a regular basis, the General Partner reviews
these estimates including those related to asset lives and depreciation methods,
impairment of long-lived assets, allowance for doubtful accounts, reserves
related to legally mandated equipment repairs and contingencies and litigation.
These estimates are based on the General Partner's historical experience and on
various other assumptions believed to be reasonable under the circumstances.
Actual results may differ from these estimates under different assumptions or
conditions. The General Partner believes, however, that the estimates,
including those for the above-listed items, are reasonable and that actual
results will not vary significantly from the estimated amounts.
The General Partner believes the following critical accounting policies affect
the more significant judgments and estimates used in the preparation of the
Partnership's financial statements:
Asset lives and depreciation methods: The Partnership's primary business
involves the purchase and subsequent lease of long-lived transportation and
related equipment. The General Partner has chosen asset lives that it believes
correspond to the economic life of the related asset. The General Partner has
chosen a deprecation method that it believes matches the benefit to the
Partnership from the asset with the associated costs. These judgments have been
made based on the General Partner's expertise in each equipment segment that the
Partnership operates. If the asset life and depreciation method chosen does not
reduce the book value of the asset to at least the potential future cash flows
from the asset to the Partnership, the Partnership would be required to record a
loss on revaluation. Likewise, if the net book value of the asset was reduced
by an amount greater than the economic value has deteriorated, the Partnership
may record a gain on sale upon final disposition of the asset.
Impairment of long-lived assets: On a regular basis, the General Partner
reviews the carrying value of its equipment to determine if the carrying value
of the assets may not be recoverable in consideration of current economic
conditions. This requires the General Partner to make estimates related to
future cash flows from each asset as well as the determination if the
deterioration is temporary or permanent. If these estimates or the related
assumptions change in the future, the Partnership may be required to record
additional impairment charges.
Allowance for doubtful accounts: The Partnership maintains allowances for
doubtful accounts for estimated losses resulting from the inability of the
lessees to make the lease payments. These estimates are primarily based on the
amount of time that has lapsed since the related payments were due as well as
specific knowledge related to the ability of the lessees to make the required
payments. If the financial condition of the Partnership's lessees were to
deteriorate, additional allowances could be required that would reduce income.
Conversely, if the financial condition of the lessees were to improve or if
legal remedies to collect past due amounts were successful, the allowance for
doubtful accounts may need to be reduced and income would be increased.
Contingencies and litigation: The Partnership is subject to legal proceedings
involving ordinary and routine claims related to its business. The ultimate
legal and financial liability with respect to such matters cannot be estimated
with certainty and requires the use of estimates in recording liabilities for
potential litigation settlements. Estimates for losses from litigation are made
after consultation with outside counsel. If estimates of potential losses
increase or the related facts and circumstances change in the future, the
Partnership may be required to record additional litigation expense.
(III) FINANCIAL CONDITION - CAPITAL RESOURCES AND LIQUIDITY
For the nine months ended September 30, 2002, the Partnership generated $0.5
million in operating cash to meets its obligations.
During the nine months ended September 30, 2002, the Partnership disposed of
marine containers, railcars and trailers and received proceeds of $1.4 million.
Accounts receivable decreased $0.2 million during the nine months ended
September 30, 2002 due to the reduction in the size of the Partnership's
equipment portfolio.
The General Partner has not planned any expenditures, nor is it aware of any
contingencies that would cause the Partnership to require any additional
capital.
The Partnership is in its active liquidation phase. As a result, the size of
the Partnership's remaining equipment portfolio and, in turn, the amount of net
cash flows from operations will continue to become progressively smaller as
assets are sold. Significant asset sales may result in special distributions to
the partners.
(IV) OUTLOOK FOR THE FUTURE
The Partnership is in its liquidation phase. Given the current economic
environment, and offers received for similar types of equipment owned by the
Partnership, the General Partner has determined it would not be advantageous to
sell the remaining Partnership equipment at the current time. The General
Partner will continue to monitor the equipment markets to determine an optimal
time to sell. In the meantime, equipment will continue to be leased, and
re-leased at market rates as existing leases expire. Although the General
Partner estimates that there will be distributions to the partners after final
disposal of assets and settlement of liabilities, the amounts cannot be
accurately determined prior to actual disposal of the equipment.
Sale decisions may cause the operating performance of the Partnership to decline
over the remainder of its life. 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.
Several factors may affect the Partnership's operating performance in the
remainder of 2002 and beyond, including changes in the markets for the
Partnership's equipment and changes in the regulatory environment in which that
equipment operates.
Liquidation of the Partnership's equipment represents a reduction in the size of
the equipment portfolio and may result in a reduction of contribution to the
Partnership. Other factors affecting the Partnership's contribution in 2002 and
beyond include:
1. Through the first nine months of 2002, U.S. and Canadian freight carloads
decreased 1% and 3% respectively, compared to the same period of 2001. There has
been, however, a recent increase in some of the commodities that drive demand
for those types of railcars most prevalent in the partnership's fleet. It will
be some time, however, before this translates into new leasing demand by
shippers since most shippers have idle cars in their fleets.
2. Utilization of intermodal trailers owned by the Partnership decreased 15% in
the nine months ended September 30, 2002 compared to the nine months ended
September 30, 2001. This decline was similar to the decline in industry wide
utilization. As the Partnership's trailers are smaller than many shippers
prefer, the General Partner expects continued declines in utilization over the
next few years. Additionally, one of the major shippers that leased the
Partnership's trailers has entered bankruptcy. While the Partnership did not
have any outstanding receivables from the company, its bankruptcy may cause a
further decline in performance of the trailer fleet in the future.
3. The Partnership's fleet of marine containers is in excess of twelve years of
age and is no longer suitable for use in international commerce either due to
its specific physical condition, or lessee's preferences for newer equipment.
Demand for the Partnership's marine containers will continue to be weak due to
their age. The marine containers are being marketed for sale.
4. The General Partner has seen in increase in insurance premiums on its
equipment portfolio and is finding it more difficult to place the coverage.
Premiums for the equipment types owned by the Partnership have increased over
25%. The increase in premiums caused by the increase in rate will be partially
mitigated by the reduction in the value of the Partnership equipment portfolio
caused by the events of September 11, 2001 and other economic factors. The
General Partner has also experienced an increase in the deductible required to
obtain coverage. This may have a negative impact on the Partnership in the
event of an insurance claim.
The ability of the Partnership to realize acceptable lease rates on its
equipment in the different equipment markets is contingent on many factors, such
as specific market conditions and economic activity, technological obsolescence,
and government or other regulations. The unpredictability of these factors, or
of their occurrence, makes it difficult for the General Partner to clearly
define trends or influences that may impact the performance of the Partnership's
equipment. The General Partner continually monitors both the equipment markets
and the performance of the Partnership's equipment in these markets. The
General Partner may decide to reduce the Partnership's exposure to those
equipment markets in which it determines that it cannot operate equipment and
achieve acceptable rates of return.
The Partnership intends to use cash flow from operations and proceeds from
disposition of equipment to satisfy its operating requirements, maintain working
capital reserves, and pay cash distributions to the unitholders.
(V) FORWARD-LOOKING INFORMATION
Except for historical information contained herein, this Form 10-Q contains
forward-looking statements that involve risks and uncertainties, such as
statements of the Partnership's plans, objectives, expectations, and intentions.
The cautionary statements made in this Form 10-Q should be read as being
applicable to all related forward-looking statements wherever they appear in
this Form 10-Q. The Partnership's actual results could differ materially from
those discussed here.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------------
The Partnership's primary market risk exposure is that of currency devaluation
risk. During the nine months ended September 30, 2002, 19% of the Partnership's
total lease revenues came from non-United States domiciled lessees. Most of the
Partnership's leases require payment in United States (U.S.) currency. If these
lessees' currency devalues against the U.S. dollar, the lessees could encounter
difficulty in making the U.S. dollar denominated lease payments.
ITEM 4. CONTROLS AND PROCEDURES
-------------------------
Within the 90-day period prior to the filing of this report, evaluations were
carried out under the supervision and with the participation of the General
Partner's management, including its President and Chief Financial Officer, of
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of
1934). Based upon those evaluations, the President and Chief Financial Officer
concluded that the design and operation of these disclosure controls and
procedures were effective. No significant changes have been made in the
Partnership's internal controls or in other factors that could significantly
affect these controls subsequent to the date of the evaluations.
(This space intentionally left blank)
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-------------------------------------
(a) Exhibits
--------
None.
(b) Reports on Form 8-K
----------------------
None.
- ------
CONTROL CERTIFICATION
- ----------------------
I, James A. Coyne, certify that:
1. I have reviewed this quarterly report on Form 10-Q of PLM Equipment
Growth Fund II.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others,
particularly during the period in which this quarterly report is prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and board of Managers:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 11, 2002 By: /s/ James A. Coyne
---------------------
James A. Coyne
President
CONTROL CERTIFICATION
I, Richard K Brock, certify that:
1. I have reviewed this quarterly report on Form 10-Q of PLM Equipment
Growth Fund II.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others,
particularly during the period in which this quarterly report is prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and board of Managers:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 11, 2002 By: /s/ Richard K Brock
----------------------
Richard K Brock
Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
PLM EQUIPMENT GROWTH FUND II
By: PLM Financial Services, Inc.
General Partner
Date: November 11, 2002 By: /s/ Richard K Brock
------------------------
Richard K Brock
Chief Financial Officer
CERTIFICATION
The undersigned hereby certifies, in their capacity as an officer of the General
Partner of PLM Equipment Growth Fund II (the Partnership), that the Quarterly
Report of the Partnership on Form 10-Q for the period ended September 30, 2002,
fully complies with the requirements of Section 13(a) of the Securities Exchange
Act of 1934 and that the information contained in such report fairly presents,
in all material respects, the financial condition of the Partnership at the end
of such period and the results of operations of the Partnership for such period.
PLM EQUIPMENT GROWTH FUND II
By: PLM Financial Services, Inc.
General Partner
Date: November 11, 2002 By: /s/ James A. Coyne
-----------------------
James A. Coyne
President
Date: November 11, 2002 By: /s/ Richard K Brock
----------------------
Richard K Brock
Chief Financial Officer