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 - ---------- <FN> (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. </FN> 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 ============================================================== - ---------- <FN> (1) Includes interest income and costs not identifiable to a particular segment such as certain operations support and general and administrative expenses. </FN> 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.