-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VCwzwoYKsdEAPUpaBmBIKJ12RjOytA4ZpCsmm+3zk+bhzZXwztGJJQVMiOJKRsMn zPfVn5rmyF53N3Yaqzjvcg== 0000754712-97-000001.txt : 19970401 0000754712-97-000001.hdr.sgml : 19970401 ACCESSION NUMBER: 0000754712-97-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND CENTRAL INDEX KEY: 0000754712 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 942946245 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14598 FILM NUMBER: 97569924 BUSINESS ADDRESS: STREET 1: ONE MARKET PLAZA STE 900 STREET 2: STEUART ST TOWER CITY: SAN FRANCISCO STATE: CA ZIP: 94105-1301 BUSINESS PHONE: 4159741399 10-K 1 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, 1996. [ ] 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 0-14598 ----------------------- PLM Transportation Equipment Partners VIIB 1985 Income Fund (Exact name of registrant as specified in its charter) California 94-2946245 (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 (Zip code) executive offices) 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 ______ Aggregate Market Value of Voting Stock: N/A An index of exhibits filed with this Form 10-K is located at page 46. Total number of pages: 49. 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, 1996. [ ] 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 0-14599 ----------------------- PLM Transportation Equipment Partners VIIC 1985 Income Fund (Exact name of registrant as specified in its charter) California 94-2946248 (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 (Zip code) executive offices) 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 ______ Aggregate Market Value of Voting Stock: N/A An index of exhibits filed with this Form 10-K is located at page 46. Total number of pages: 49. PART I ITEM 1. BUSINESS (A) Background PLM Transportation Equipment Partners VIIB 1985 Income Fund (TEP VIIB or the Partnership) and PLM Transportation Equipment Partners VIIC 1985 Income Fund (TEP VIIC or the Partnership) (together, the Partnerships) are California limited partnerships which were formed in October 1984, and began operations in January 1985. The Partnerships operate under their respective Limited Partnership Agreements (Partnership Agreement) for the purpose of acquiring, owning and leasing transportation equipment. PLM Financial Services, Inc. (FSI), a wholly-owned subsidiary of PLM International, Inc. (PLM International), serves as the General Partner for both TEP VIIB and TEP VIIC. The Partnerships were formed to engage in the business of owning and managing diversified pools of transportation equipment. The primary objectives of each Partnership are to invest in equipment which will: (i) generate cash distributions to investors on a quarterly basis; (ii) maintain substantial residual value for continued operation and ultimate sale; (iii) provide certain federal income tax benefits, including investment tax credits, to the extent available, in 1986 and tax deductions in excess of Partnership income during early years which investors may use to offset taxable income from other sources. (iv)to endeavor to reduce certain of the risks of equipment ownership by acquiring a diversified portfolio of varying equipment types. The 1986 Tax Reform Act (the Act) substantially altered some of the Partnership objectives. Specifically, the ability of investors in the Partnership to use tax deductions in excess of Partnership income to offset taxable income from other sources was not only limited in duration by the Act (no offsets were allowed after 1990), but also limited to a declining percentage that could be applied against other income beginning in 1987. The Act also eliminated the investment tax credit. (B) Management of Partnership Equipment The Partnerships have entered into equipment management agreements with PLM Investment Management, Inc. (IMI), a wholly-owned subsidiary of FSI, for the management of the equipment. IMI has agreed to perform all services necessary to manage transportation equipment on behalf of the Partnerships and to perform or contract for the performance of all obligations of the lessor under the Partnerships' leases. In consideration for its services and pursuant to the Partnership Agreements, IMI is entitled to a monthly management fee. Management fees are calculated as 10% of cash flow available for distribution and are payable monthly (see Financial Statements, Notes 1 and 2). TEP VIIB The offering of limited partnership units (the Units) of PLM Transportation Equipment Partners VIIB 1985 Income Fund (TEP VIIB or the Partnership) closed on August 27, 1985 having sold 22,276 Units. FSI contributed $100 for its 1% general partnership interest in TEP VIIB. As of December 31, 1996, TEP VIIB owned the following equipment: 27 marine containers, five tank cars, and 189 trailers. All of the Partnership's trailer equipment operates in rental yards owned and maintained by an affiliate of the General Partner. Revenue collected under short-term rental agreements with the rental yards' customers are credited to the owners of the related equipment as received. Direct expenses associated with the equipment are charged directly to the Partnership. An allocation of other direct expenses of the rental yard operations are billed to the Partnership monthly. All equipment owned by TEP VIIB was on lease as of December 31, 1996. Lessees of the equipment in the TEP VIIB portfolio include, but are not limited to: Transamerica Leasing, Dupont SA, and Pines Trailer, Ltd. TEP VIIC The offering of limited partnership units (the Units) of PLM Transportation Equipment Partners VIIC 1985 Income Fund (TEP VIIC or the Partnership) closed on December 6, 1985 having sold 33,727 Units. FSI contributed $100 for its 1% general partnership interest in TEP VIIC. As of December 31, 1996, TEP VIIC owned the following equipment: 26 marine containers, 172 trailers, and an interest in an entity which owns one aircraft. The aircraft is jointly owned by TEP VIIC (80%) and PLM International (20%). All of the Partnership's trailer equipment operates in rental yards owned and maintained by an affiliate of the General Partner. Revenue collected under short-term rental agreements with the rental yards' customers are credited to the owners of the related equipment as received. Direct expenses associated with the equipment are charged directly to the Partnership. An allocation of other direct expenses of the rental yard operations are billed to the Partnership monthly. All of the equipment owned by TEP VIIC was either operating in the rental facilities or on lease as of December 31, 1996. Lessees of the equipment in the TEP VIIC portfolio include, but are not limited to: Horizon Air Industries, Inc., and Transamerica Leasing. (C) Competition (1) Operating Leases vs. Full Payout Leases Generally, the equipment owned by the Partnerships is leased out on an operating lease basis wherein the rents owed during the initial non-cancelable term of the lease are insufficient to recover the Partnerships 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 the operating lease need not be capitalized on the lessee's balance sheet. The Partnerships encounter considerable competition from lessors utilizing full payout leases on new equipment, i.e., leases which have terms equal to the expected economic life of the equipment. Full payout leases are written for longer terms and for lower rates than the Partnerships offer. 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 of the Partnerships may write full payout leases at considerably lower rates, or larger competitors with a lower cost of capital may offer operating leases at lower rates, and as a result, the Partnerships may be at a competitive disadvantage. (2) Manufacturers and Equipment Lessors The Partnerships also compete with equipment manufacturers who offer operating leases and full payout leases. Manufacturers may provide ancillary services which the Partnerships cannot offer, such as specialized maintenance services (including possible substitution of equipment), training, warranty services and trade-in privileges. The Partnerships compete with many equipment lessors, including, among others, ACF Industries, Inc. (Shippers Car Line Division), Transport International Pool, General Electric Railcar Services Corporation, Greenbrier Leasing Company, and other limited partnerships which lease the same types of equipment. (D) Government Regulations The use, maintenance, and ownership of equipment is regulated by federal, state, local and/or foreign governmental authorities. Such regulations which may impose restrictions and financial burdens on the Partnerships' ownership and operation of equipment, which may affect the Partnerships' liquidity. Changes in government regulations, industry standards, or deregulation, may also affect the ownership, operation and resale of the equipment. Certain of the Partnerships' equipment is subject to extensive safety and operating regulations which may require the removal from service or extensive modification, at considerable cost, of such equipment to meet the regulations. Such regulations include (but are not limited to): (1) the U.S. Department of Transportation's Aircraft Capacity Act of 1990 (which limits or eliminates the operation of commercial aircraft in the U.S. that do not meet certain noise, aging, and corrosion criteria); (2) the Montreal Protocol on Substances that Deplete the Ozone Layer and the U.S. Clean Air Act Amendments of 1990 which call for the control of and eventual replacement of substances that have been found to cause or contribute significantly to harmful effects on the stratospheric ozone layer and which are used extensively as refrigerants in refrigerated marine cargo containers, over-the-road trailers, etc.; (3) the U.S. Department of Transportation's Hazardous Materials Regulations which regulate the classification of and packaging requirements for hazardous materials and which apply particularly to the Partnerships' tankcars. (E) Demand The Partnerships invested in Transportation-related capital equipment. With the exception of aircraft leased to passenger air carriers, the Partnerships' equipment is used primarily for the transport of materials. The following describes the markets for the Partnerships' equipment: (1) Commuter Aircraft/Regional Aircraft Independent forecasts show the regional aircraft market is growing at a rate of 5.5% per year through 2013. This is slightly higher than the comparable growth rate in commercial aircraft of 4.7% over the same period. Currently there are 4,390 regional aircraft in service in the 15 to 70 seat class. Independent forecasts show this will grow to over 5,000 aircraft during the next 17 years. The highest growth markets are the 30 to 50 seat turboprops. The emphasis on the larger aircraft in the future is a result of growing passenger numbers, airport congestion and the extension of regional airline route networks requiring longer range aircraft. These events will continue the current trend of the major airlines to hand down the operations of their marginal shorthaul routes to affiliated regional carriers. At December 31, 1996, the Partnership had an interest in an entity which owns a commuter aircraft that is in the 19 seat category operating in North America. The Partnership expects to sell this investment in 1997. (2) Marine Containers At the end of 1995, the consensus of industry sources was that 1996 would see both higher container utilization and strengthening of per diem lease rates. Such was not the case, as there was no appreciable cyclical improvement in the container market following the traditional winter slowdown. Industry utilization continues to be under pressure, with per diem rates being impacted as well. A substantial portion of the Partnership's containers are on long-term utilization leases which were entered into with Trans Ocean Leasing as lessee. The industry has seen a major consolidation, as Transamerica Leasing, late in the fourth quarter of 1996, acquired Trans Ocean Leasing. Transamerica Leasing is the second largest container leasing company in the world. Transamerica Leasing is the substitute lessee for Trans Ocean Leasing. Long term, such industry consolidation should bring more rationalization to the market and result in higher utilization and per diem rates. (3) Railcars General-purpose, or nonpressurized, tank cars are used to transport a wide variety of bulk liquid commodities, such as petroleum fuels, lubricating oils, vegetable oils, molten sulphur, corn syrup, asphalt, and specialty chemicals. Demand for general purpose tank cars in the Partnership fleet has remained healthy over the last two years with utilization remaining above 98%. Independent projections show the demand for petroleum growing during 1997 to 1999, as the developing world, former Communist countries, and the industrialized world all increase their demand for energy. Chemical carloadings for the first 40 weeks of 1996 were up one tenth of one percent (0.1%) as compared to the same period in 1995. (4) Over-the-Road Dry Trailers The over-the-road dry trailer market was weak in 1996, with utilization down 15%. The trailer industry experienced a record year in 1994 for new production and 1995 production levels were similar to 1994's. However, in 1996 , the truck freight recession, along with an overbuilding situation, contributed to 1996's poor performance. The year 1996 had too little freight and too much equipment industrywide. (5) Over-the-Road Refrigerated Trailers PLM experienced fairly strong demand levels in 1996 for its refrigerated trailers. With over 15% of the fleet in refrigerated trailers, PLM and the Partnerships are the largest supplier of short-term rental refrigerated trailers in the U.S.. ITEM 2. PROPERTIES The Partnerships neither own nor lease any properties other than the equipment they have purchased for lease to others. As of December 31, 1996, each Partnership owned a portfolio of transportation equipment as described in Part I, Item 1. It is not contemplated that any more equipment will be acquired. The Partnerships maintain their principal offices at One Market, Steuart Street Tower, Suite 800, San Francisco, California 94105-1301. All office facilities are provided by FSI without reimbursement by the Partnerships. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Partnerships' Limited Partners during the fourth quarter of its fiscal year ended December 31, 1996. PART II ITEM 5. MARKET FOR THE PARTNERSHIPS' EQUITY AND RELATED UNITHOLDER MATTERS Pursuant to the terms of the Partnership Agreements, the General Partner is entitled to a 1% interest in the profits, losses and distributions of the Partnerships. The General Partner also is entitled to a special allocation of any net profit or gains from sale of each Partnership's assets during the liquidation phase in an amount equal to the excess of the net losses previously allocated to the General Partner over the capital contributions made by the General Partner. FSI is the sole holder of such interests. Ownership of the remaining 99% interest in the profits and losses and distributions of the respective Partnerships is represented as follows: TEP VIIB TEP VIIC ------------------------------- Holders of Limited Partnership Units as of December 31, 1996 835 1,226 There are several secondary exchanges which may purchase limited partnership units. Secondary markets are characterized as having few buyers for limited partnership interests and, therefore, generally are viewed as inefficient vehicles for the sale of partnership units. There is no public market for these Limited Partnership Units and none is likely to develop. Moreover, the Limited Partnership Units are subject to substantial restrictions on transferability. ITEM 6. SELECTED FINANCIAL DATA Tables 1, below, lists selected financial data for the respective Partnerships. TABLE 1 For the years ended December 31,
TEP VIIB 1996 1995 1994 1993 1992 --------------------------------------------------------------------------------------------------------------------------------- Operating results: Total revenues $ 487,226 $ 732,844 $ 813,152 $ 861,606 $ 915,874 Loss on revaluation of equipment -- -- -- (65,475 ) (35,000) Gain (loss) on disposition of equipment 62,907 27,563 14,663 (15,985 ) 2,562 Equity in net income of unconsolidated special purpose entity 265,108 -- -- -- -- Net income 238,083 29,306 88,689 139,613 189,710 At year-end: Total assets $ 523,019 $ 867,962 $ 1,269,667 $ 1,653,415 $ 2,155,868 Total liabilities 37,477 26,193 61,017 58,033 119,031 Cash distributions $ 394,310 $ 396,187 $ 475,421 $ 581,068 $ 954,181 Cash distributions and special distributions which represent a return of capital to Limited Partners $ 352,665 $ 363,212 $ 382,865 $ 437,040 $ 756,826 Special distributions $ 200,000 $ -- $ -- $ -- $ -- Per weighted average limited partnership unit: Net income $ 10.58 $ 1.30 $ 3.94 $ 6.20 $ 8.43 Cash distributions $ 17.52 $ 17.61 $ 21.13 $ 25.82 $ 42.41 Cash distributions and special distributions which represent a return of capital to Limited Partners $ 15.83 $ 16.31 $ 17.19 $ 19.62 $ 33.97 Special distributions $ 8.89 $ -- $ -- $ -- $ --
For the years ended December 31,
TEP VIIC 1996 1995 1994 1993 1992 --------------------------------------------------------------------------------------------------------------------------------- Operating results: Total revenues $ 565,080 $ 1,254,597 $ 1,712,474 $ 1,682,390 $ 1,822,559 Loss on revaluation of equipment -- -- -- (11,698 ) -- Gain (loss) on disposition of equipment 133,840 84,289 68,223 (131,532 ) (9,970 ) Equity in net income of unconsolidated special purpose entities 653,740 -- -- -- -- Net income 600,944 175,174 441,222 359,895 366,686 At year-end: Total assets $ 792,790 $ 1,648,364 $ 2,526,952 $ 3,199,276 $ 4,154,778 Total liabilities 20,066 22,228 28,451 46,293 141,876 Cash distributions $ 654,356 $ 847,539 $ 995,704 $ 1,049,476 $ 1,053,534 Cash distributions and special distributions which represent a return of capital to Limited Partners $ 844,877 $ 863,642 $ 647,937 $ 851,320 $ 778,980 Special distributions $ 800,000 $ 200,000 $ 100,000 $ 170,338 $ 100,000 Per weighted average limited partnership unit: Net income $ 17.64 $ 5.14 $ 12.95 $ 10.56 $ 10.76 Cash distributions $ 19.21 $ 24.88 $ 29.23 $ 30.81 $ 30.92 Cash distributions and special distribution which represent a return of capital to Limited Partners $ 25.05 $ 25.61 $ 19.21 $ 25.24 $ 23.10 Special distributions $ 23.48 $ 5.87 $ 2.94 $ 5.00 $ 2.94
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources (A) Sources The Partnerships' primary source of liquidity is operating cash flow. Proceeds realized from the sale or disposal of equipment are generally distributed to the partners. The Partnerships' original source of capital was proceeds from its initial public offering of limited partnership units. (B) Asset Sales Equipment sales and dispositions prior to the Partnerships' planned liquidation phase generally result from either the exercise by lessees of fair market value purchase options provided for in certain leases, or the payment of stipulated loss values on equipment lost or disposed during the time it is subject to lease agreements. Such disposal of equipment is unpredictable and results from the wear, tear, and general risk of normal operations. As discussed in note 6, the Partnerships have entered the portfolio liquidation phase as of the third quarter of 1995. The General Partner is actively marketing the remaining equipment portfolio with the intent of maximizing sale proceeds. (C) Market Values In March 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" (SFAS 121). This standard is effective for years beginning after December 15, 1995. The Partnership adopted SFAS 121 during 1995. In accordance with SFAS 121, the General Partner reviews the carrying value of its equipment portfolio at least annually in relation to expected future market conditions for the purpose of assessing recoverability of the recorded amounts. If projected future lease revenue plus residual values are less than the carrying value of the equipment, a loss on revaluation is recorded. No adjustments to reflect impairment of individual equipment carrying values were required for the year ended December 31, 1996. As of December 31, 1996, the General Partner estimated the fair market value of each Partnerships' equipment portfolio, including equipment owned by unconsolidated special purpose entities (USPE's), to be approximately: $1.0 million and $1.8 million for TEP VIIB and TEP VIIC respectively. (D) Government Regulations The General Partner operates the Partnerships' equipment in accordance with current regulations (see Item 1 (D) Government Regulations). However, the continuing implementation of new or modified regulations by some of the authorities mentioned previously, or others, may adversely affect the Partnerships' ability to continue to own or operate equipment in its portfolio. These on-going changes in the regulatory environment, both in the U.S. and internationally, cannot be predicted with any certainty and thus preclude the General Partner from accurately determining the impact of such changes on Partnership operations, purchases and sales of equipment. (E) Future outlook Pursuant to the original operating plan, the Partnerships entered into their liquidation phase during 1995 and the General Partner is actively pursuing the sale of all of the Partnerships' equipment with the intention of winding up the Partnerships and distributing all available cash to the Partners. (F) Result of operations - Year To Year Summary Comparison of the Partnerships' Operating Results for the Years Ended December 31, 1996 and 1995 TEP VIIB: (A) Owned equipment operations Lease revenues less direct expenses (defined as repairs and maintenance and asset specific insurance expenses) on owned equipment decreased for the year ended December 31, 1996 when compared to the same period of 1995. The following table presents lease revenues less direct expenses by owned equipment type:
For the twelve months ended December 31, 1996 1995 --------------------------------- Trailers $ 241,016 $ 365,141 Railcar equipment 28,972 21,414 Marine containers 18,303 22,452
Trailers: Trailer lease revenues and direct expenses were $362,500 and $121,484, respectively, for the year ended December 31, 1996, compared to $525,408 and $160,267, respectively, during the same period of 1995. The decrease in net contribution was due to lower utilization of trailers in the short-term rental facilities for the twelve months ended December 31, 1996 when compared to the same period of 1995, and the disposition of eight trailers in 1995 and 19 trailers during 1996; Railcar equipment: Railcar lease revenues and direct expenses were $30,000 and $1,028, respectively, for year ended December 31, 1996, compared to $28,049 and $6,635, respectively, during the same period of 1995. Although the railcar fleet remained the same size for both years, the increase in railcar contribution resulted from running repairs required on certain railcars in the fleet during 1995 which were not needed during 1996. In addition, early lease termination on four railcars in the third quarter of 1995 resulted in a credit given back to the lessee. Marine containers: Marine container lease revenues and direct expenses were $18,417 and $114, respectively, for the year ended December 31, 1996, compared to $22,703 and $251, respectively, during the same period of 1995. The number of marine containers owned by the Partnership has been declining over the past twelve months due to sales and dispositions. The result of this declining fleet has been a decrease in marine container net contribution. (B) Indirect expenses related to owned equipment operations Total indirect expenses of $391,625 for the year ended December 31, 1996, decreased from $485,781 for the same period in 1995. The variances are explained as follows: (a) a $36,165 decrease in bad debt expense was due to the General Partner's evaluation of the collectibility of trade receivables from trailer rental yard lessees; (b) a $29,847 decrease in general and administrative expenses from 1995 levels was due to decreased accounting costs and administrative costs associated with the short-term rental facilities; (c) a $24,599 decrease in depreciation expenses from 1995 levels reflecting the sale of certain assets during 1996 and 1995. (d) a $3,545 decrease in management fee from 1995 levels due to a lower level of operating cash flow associated with lower lease revenue on trailers and lower utilization and rates on marine containers. Management fees are calculated monthly as the greater of 10% of the Partnership's operating cash flow, or 1/12 of 1/2% of the Partnership's Gross Proceeds as defined in the Limited Partnership Agreement. (C) For the year ended December 31, 1996, the Partnership realized a gain of $62,907 on the sale or disposition of nine marine containers and 19 trailers, compared to the same period in 1995 when the Partnership realized a gain of $27,563 on the sale or disposition of eight trailers and 15 marine containers. (D) Interest and other income decreased to $13,402 for the year ended December 31, 1996 from $32,119 for the same period of 1995. This decrease was primarily due to income earned from an early lease termination penalty on four railcars in the third quarter of 1995, and lower interest income earned due to lower cash balances available for investments when compared to the same period of 1995. (E) Equity in net income of the unconsolidated special purpose entity Equity in net income of unconsolidated special purpose entity was $265,108 for the year ended December 31, 1996, and represents the Partnership share of income ($28,408) generated from the partnership investment in an entity which owns an aircraft, accounted for under the equity method and the gain ($236,700) resulting from the sale by this entity of this aircraft during 1996 (see Note 4 to the financial statements). (F) Net income The Partnership's net income of $238,083 for the year ended December 31, 1996, increased from $29,306 for the year ended December 31, 1995. The Partnership's ability to operate or liquidate assets, secure leases, and re-lease those assets whose leases expire during the duration of the Partnership is subject to many factors, and the Partnership's performance in 1996 is not necessarily indicative of future periods. For the year ended December 31, 1996, the Partnership distributed $588,367 to the Limited Partners, or $26.41 per weighted average Limited Partnership Unit which included a special distribution from asset sales of $8.89 per unit. All of the equipment owned by TEP VIIB was either operating in the trailer rental facilities or on lease as of December 31, 1996. The Partnership's performance during 1996 is not necessarily indicative of future periods. TEP VIIC: (A) Owned equipment operations Lease revenues less direct expenses (defined as repairs and maintenance and asset specific insurance expenses) on owned equipment decreased during 1996 when compared to the same period of 1995. The following table presents lease revenues less direct expenses by owned equipment type:
For the twelve months ended December 31, 1996 1995 --------------------------------- Trailers $ 284,335 $ 484,019 Marine containers 14,125 29,350
Trailers: Trailer lease revenues and direct expenses were $392,542 and $108,207, respectively, for the year ended December 31, 1996, compared to $707,321 and $223,302, respectively during the same period during 1995. The decrease in net contribution was due to lower utilization of trailers in the short-term rental facilities in 1996 when compared to 1995, and the disposition of 14 trailers in 1995 and 40 trailers during 1996; Marine containers: Marine container lease revenues and direct expenses were $14,332 and $207, respectively, for the twelve months ended 1996, compared to $29,819 and $469, respectively during the same period during 1995. The number of marine containers owned by the Partnership has been declining over the past twelve months due to sales and dispositions. The result of this declining fleet has been a decrease in marine container net contribution. (B) Indirect expenses related to owned equipment operations Total indirect expenses of $509,462 for the year ended December 31, 1996, decreased from $643,725 for the same period in 1995. The variances are explained as follows: (a) a $63,135 decrease in the general and administrative expenses from 1995 levels due to decreased accounting costs and administrative costs associated with the short-term rental facilities due to decreased volume of trailers operating in these facilities; (b) a $47,340 decrease in depreciation expenses from 1995 levels reflecting the sale of certain assets during 1996 and 1995; (c) a $33,259 decrease in bad debt expense due to the General Partner's evaluation of the collectibility of trade receivables from trailer rental yard lessees; (d) a $9,471 increase in management fees due to higher levels of operating cash flow during the comparable periods. Monthly management fees are calculated as the greater of 10% of the Partnership's Operating Cash Flow, or 1/12 of 1/2% of the Partnership's Capital Contributions as defined in the Limited Partnership Agreement. (C) For the year ended December 31, 1996, the Partnership realized a gain of $133,840 on the sale or disposition of 40 trailers and 10 marine containers, compared to the same period in 1995, when the Partnership realized a gain of $84,289 on the sale or disposition of 14 trailers and 17 marine containers. (D) Equity in net income of unconsolidated special purpose entities Equity in net income of unconsolidated special purpose entities of $653,740 for the year ended December 31, 1996, represents the Partnership share of income ($117,919) generated from the partnership investment in entities which own aircraft, accounted for under the equity method and the gain ($535,821) resulting from the sale by this entity of the aircraft during 1996 (see Note 4 to the financial statements). (E) Interest and other income decreased to $24,366 for the year ended December 31, 1996, from $35,376 compared to the same period of 1995. This decrease was primarily due to lower interest rate earned on cash investments in 1996. (F) Net income The Partnership's net income increased to $600,944 for the year ended December 31, 1996, from $175,174 in the same period in 1995. The Partnership's ability to operate or liquidate assets, secure leases, and re-lease those assets whose leases expire during the duration of the Partnership is subject to many factors, and the Partnership's performance in 1996 is not necessarily indicative of future periods. For the year ended December 31, 1996, the Partnership distributed $1,439,812 to the Limited Partners, or $42.69 per weighted average Limited Partnership Unit which included a special distribution from asset sales of $23.48 per unit. All of the equipment owned by TEP VIIC was either operating in the trailer rental facilities or on lease as of December 31, 1996. The Partnership's performance during 1996 is not necessarily indicative of future periods. Comparison of the Partnerships' Operating Results for the Years Ended December 31, 1995 and 1994 TEP VIIB: (A) Revenues Total revenues for the years ended December 31, 1995 and 1994, were $732,844 and $813,152, respectively. The decrease in 1995 revenue was attributable primarily to lower lease revenues, and lower interest and other income. (1) Lease revenue decreased to $673,162 in 1995 from $786,981 in 1994. The following table lists lease revenues earned by equipment type: For the year ended December 31, 1995 1994 --------------------------------- Trailers $ 525,408 $ 631,161 Aircraft 97,002 99,081 Rail equipment 28,049 32,660 Marine containers 22,703 24,079 ================================ $ 673,162 $ 786,981 ================================ Significant revenue component changes resulted primarily from: (a) Trailer revenues decreased due to off lease time on trailers previously operating on fixed-term leases transitioning to the PLM-affiliated short-term rental facilities during 1995, and the disposition of eight trailers during 1995; (b) Railcar revenues decreased due to the re-lease of some railcars at lower rates than currently available in the market for the types of cars owned by the Partnership. (2) Interest and other income increased to $32,119 in 1995 from $11,508 in 1994. The increase in 1995 was primarily attributable to income earned from an early lease termination penalty on four railcars in the second quarter of 1995, and higher average interest rates during 1995. (B) Expenses The Partnership's total expenses for the years ended December 31, 1995 and 1994 were $703,538 and $724,463, respectively. The decrease was attributable primarily to decreases in depreciation expense, repairs and maintenance, and general and administrative expenses, partially offset by an increase in bad debt expense. (1) Direct operating expenses (defined as repairs and maintenance and insurance expense) decreased to $167,475 in 1995 from $183,155 in 1994. The decrease in repairs and maintenance is primarily attributed to a decrease in the number of trailers coming off term leases and requiring refurbishment prior to transitioning into the short-term rental facilities operated by an affiliate of the General Partner, and the disposition of trailers during 1995. (2) Indirect Operating Expenses (defined as depreciation expense, management fees to affiliate, bad debt expense, and general and administrative expenses) decreased to $536,063 in 1995 from $541,308 in 1994. The decrease is due primarily to: (a) a decrease of $15,462 in depreciation expense resulting from disposition of trailers and marine containers during 1995; (b) a decrease of $5,692 in general and administrative expenses primarily due to the decreased overall fleet size and decreased indirect costs associated with trailers in the PLM-affiliated short-term rental facilities; (c) an increase of $17,328 in bad debt expense due to the General Partner's evaluation of the collectability of certain of the Partnership's trade accounts receivable; (3) Gain from disposition of equipment of $27,563 was realized from the sale or disposition of eight trailers and 15 marine containers in 1995. In 1994, the Partnership realized a gain of $14,663 from the sale or disposition of eight trailer and 24 marine containers. (C) Net Income As a result of all of the foregoing, net income for the year ended December 31, 1995, decreased to $29,306 from $88,689 for the year ended December 31, 1994. The Partnership's ability to operate or liquidate assets, secure leases, and re-lease those assets whose leases expire during the duration of the Partnership is subject to many factors, and the Partnership's performance in 1995 is not necessarily indicative of future periods. In 1995, TEP VIIB distributed $392,225 to the Limited Partners, or $17.61 per Unit. TEP VIIC: (A) Revenues Total revenues for the years ended December 31, 1995 and 1994, were $1,254,597 and $1,712,474, respectively. The decrease in 1995 revenue was attributable primarily to a decrease in lease revenues partially offset by an increase in interest and other income, and an increase in gain on disposition of equipment. (1) Lease revenue decreased in 1995 to $1,134,932 as compared to $1,616,995 in 1994. The following table lists lease revenues earned by equipment type:
For the year ended December 31, 1995 1994 ------------------------------------- Trailers $ 707,321 $ 1,073,039 Aircraft 397,791 514,617 Marine containers 29,820 29,339 =================================== $ 1,134,932 $ 1,616,995 ===================================
Significant revenue component changes resulted primarily from: (a) Trailer revenues decreased $365,718 due to off lease time on trailers previously operating on fixed-term leases transitioning to the PLM-affiliated short-term rental facilities during 1995, a decline in utilization in the PLM-affiliated short-term rental facilities during 1995 and the disposition of 14 trailers in 1995; (b) Aircraft revenue decreased $116,826 due to a reduced release rate for one lease. (2) Interest and other income increased to $35,376 in 1995 from $27,256 in 1994. The increase in 1995 was primarily attributable to higher interest income in 1995 due to higher cash balance invested and higher average interest rates in 1995. (B) Expenses The Partnership's total expenses for the years ended December 31, 1995 and 1994 were $1,079,423 and $1,271,252, respectively. The decrease was attributable primarily to decreases in general and administrative expenses, depreciation expense, repairs and maintenance expense, bad debt expense, and management fees. (1) Direct operating expenses (defined as repairs and maintenance expenses and insurance expense) decreased to $228,281 in 1995 from $265,498 in 1994. The decrease is primarily attributed to a decrease in the number of trailers coming off term leases and requiring refurbishment prior to transitioning into the PLM-affiliated short-term rental facilities. (2) Indirect Operating Expenses (defined as depreciation expense, management fees to affiliate, bad debt expense, and general and administrative expenses) decreased to $851,142 in 1995 from $1,005,754 in 1994. The decrease is due primarily to: (a) a decrease of $57,537 in general and administrative expenses primarily due to the decreased overall fleet size and decreased indirect costs associated with trailers in the PLM-affiliated short-term rental facilities. (b) a decrease of $46,198 in depreciation expense due to the disposition of trailers and marine containers during 1995; (c) a decrease of $25,830 in bad debt expense due to improved collectability of trade accounts receivable; (d) a decrease of $25,047 in management fees to affiliate due to a lower level of operating cash flow associated with lower lease revenue on trailers and lower utilization and rates on marine containers. Management fees are calculated monthly as the greater of 10% of the Partnership's operating cash flow, or 1/12 of 1/2% of the Partnership's Gross Proceeds as defined in the Limited Partnership Agreement; (3) Gain from disposition of equipment of $84,289 was realized from the sale or disposition of 17 marine containers and 14 trailers during 1995. In 1994, the Partnership realized a gain of $68,223 on the sale or disposition of 18 trailers and 21 marine containers. (C) Net Income As a result of all the foregoing, net income for the year ended December 31, 1995, decreased to $175,174 from $441,222 for the year ended December 31, 1994. The Partnership's ability to operate or liquidate assets, secure leases, and re-lease those assets whose leases expired during the duration of the Partnership is subject to many factors, and the Partnership's performance in 1995 is not necessarily indicative of future periods. In 1995, TEP VIIC distributed $1,037,064 to the Limited Partners, or $30.75 per Unit. All of the equipment owned by TEP VIIC was either operating in the trailer rental facilities or on lease as of December 31, 1995. The Partnership's performance during 1995 is not necessarily indicative of future periods. Inflation Inflation and changing prices did not materially impact the Partnerships' revenues or net income during the reported periods. 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. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and financial statement schedules for the Partnerships are listed on the Index to Financial Statements included in Item 14(a) of this Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. (This space intentionally left blank) PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP As of the date of this Annual Report, the directors and executive officers of PLM International (and key executive officers of its subsidiaries) are as follows:
Name Age Position - -------------------------------------- ------------------- ------------------------------------------------------- J. Alec Merriam 61 Director, Chairman of the Board, PLM International, Inc.; Director, PLM Financial Services, Inc. Douglas P. Goodrich 50 Director and Senior Vice President, PLM International; Director and President, PLM Financial Services, Inc.; Senior Vice President PLM Transportation Equipment Corporation; President, PLM Railcar Management Services, Inc. Walter E. Hoadley 80 Director, PLM International, Inc. Robert L. Pagel 60 Director, Chairman of the Executive Committee, PLM International, Inc.; Director, PLM Financial Services, Inc. Harold R. Somerset 62 Director, PLM International, Inc. Robert N. Tidball 58 Director, President and Chief Executive Officer, PLM International, Inc. J. Michael Allgood 48 Vice President and Chief Financial Officer, PLM International, Inc. and PLM Financial Services, Inc. Stephen M. Bess 50 President, PLM Investment Management, Inc. and PLM Securities, Corp.; Vice President, PLM Financial Services, Inc. David J. Davis 40 Vice President and Corporate Controller, PLM International and PLM Financial Services, Inc. Frank Diodati 42 President, PLM Railcar Management Services Canada Limited. Steven O. Layne 42 Vice President, PLM Transportation Equipment Corporation; Vice President and Director, PLM Worldwide Management Services, Ltd. Stephen Peary 48 Senior Vice President, General Counsel and Secretary, PLM International, Inc.; Vice President, General Counsel and Secretary, PLM Financial Services, Inc., PLM Investment Management, Inc., PLM Transportation Equipment Corporation; Vice President, PLM Securities, Corp. Thomas L. Wilmore 54 Vice President, PLM Transportation Equipment Corporation; Vice President, PLM Railcar Management Services, Inc.
J. Alec Merriam was appointed Chairman of the Board of Directors of PLM International in September 1990, having served as a director since February 1988. In October 1988 he became a member of the Executive Committee of the Board of Directors of PLM International. From 1972 to 1988 Mr. Merriam was Executive Vice President and Chief Financial Officer of Crowley Maritime Corporation, a San Francisco area-based company engaged in maritime shipping and transportation services. Previously, he was Chairman of the Board and Treasurer of LOA Corporation of Omaha, Nebraska and served in various financial positions with Northern Natural Gas Company, also of Omaha. Douglas P. Goodrich was elected to the Board of Directors in July 1996, appointed Director and President of PLM Financial Services, Inc. in June, 1996, and appointed Senior Vice President of PLM International in March 1994. Mr. Goodrich has also served as Senior Vice President of PLM Transportation Equipment Corporation since July 1989, and as President of PLM Railcar Management Services, Inc. since September 1992 having been a Senior Vice President since June 1987. Mr. Goodrich was an Executive Vice President of G.I.C. Financial Services Corporation, a subsidiary of Guardian Industries Corp. of Chicago, Illinois from December 1980 to September 1985. Dr. Hoadley joined PLM International's Board of Directors and its Executive Committee in September, 1989. He served as a Director of PLM, Inc. from November 1982 to June 1984 and PLM Companies, Inc. from October 1985 to February 1988. Dr. Hoadley has been a Senior Research Fellow at the Hoover Institute since 1981. He was Executive Vice President and Chief Economist for the Bank of America from 1968 to 1981 and Chairman of the Federal Reserve Bank of Philadelphia from 1962 to 1966. Dr. Hoadley has served as a Director of Transcisco Industries, Inc. from February 1988 through August 1995. Robert L. Pagel was appointed Chairman of the Executive Committee of the Board of Directors of PLM International in September 1990, having served as a director since February 1988. In October 1988 he became a member of the Executive Committee of the Board of Directors of PLM International. From June 1990 to April 1991 Mr. Pagel was President and Co-Chief Executive Officer of The Diana Corporation, a holding company traded on the New York Stock Exchange. He is the former President and Chief Executive Officer of FanFair Corporation which specializes in sports fans' gift shops. He previously served as President and Chief Executive Officer of Super Sky International, Inc., a publicly traded company, located in Mequon, Wisconsin, engaged in the manufacture of skylight systems. He was formerly Chairman and Chief Executive Officer of Blunt, Ellis & Loewi, Inc., a Milwaukee-based investment firm. Mr. Pagel retired from Blunt, Ellis & Loewi in 1985 after a career spanning 20 years in all phases of the brokerage and financial industries. Mr. Pagel has also served on the Board of Governors of the Midwest Stock Exchange. Harold R. Somerset was elected to the Board of Directors of PLM International in 1994. From February 1988 to December 1993, Mr. Somerset was President and Chief Executive Officer of California & Hawaiian Sugar Corporation, (C&H) a recently-acquired subsidiary of Alexander & Baldwin, Inc. Mr. Somerset joined C&H in 1984 as Executive Vice President and Chief Operating Officer, having served on its Board of Directors since 1978, a position in which he continues to serve. Between 1972 and 1984, Mr. Somerset served in various capacities with Alexander & Baldwin, Inc., a publicly-held land and agriculture company headquartered in Honolulu, Hawaii, including Executive Vice President - Agricultures, Vice President, General Counsel and Secretary. In addition to a law degree from Harvard Law School, Mr. Somerset also holds degrees in civil engineering from the Rensselaer Polytechnic Institute and in marine engineering from the U.S. Naval Academy. Mr. Somerset also serves on the Boards of Directors for various other companies and organizations, including Longs Drug Stores, Inc., a publicly-held company. Robert N. Tidball was appointed President and Chief Executive Officer of PLM International in March 1989. At the time of his appointment, he was Executive Vice President of PLM International. Mr. Tidball became a director of PLM International in April, 1989 and a member of the Executive Committee of the Board of Directors of PLM International in September 1990. Mr. Tidball was elected President of PLM Railcar Management Services, Inc. in January 1986. Mr. Tidball was Executive Vice President of Hunter Keith, Inc., a Minneapolis-based investment banking firm, from March 1984 to January 1986. Prior to Hunter Keith, Inc., he was Vice President, a General Manager and a Director of North American Car Corporation, and a Director of the American Railcar Institute and the Railway Supply Association. J. Michael Allgood was appointed Vice President and Chief Financial Officer of PLM International in October 1992. Between July 1991 and October 1992, Mr. Allgood was a consultant to various private and public sector companies and institutions specializing in financial operational systems development. In October 1987, Mr. Allgood co-founded Electra Aviation Limited and its holding company, Aviation Holdings Plc of London where he served as Chief Financial Officer until July 1991. Between June 1981 and October 1987, Mr. Allgood served as a First Vice President with American Express Bank, Ltd. In February 1978, Mr. Allgood founded and until June 1981, served as a director of Trade Projects International/Philadelphia Overseas Finance Company, a joint venture with Philadelphia National Bank. From March 1975 to February 1978, Mr. Allgood served in various capacities with Citibank, N.A. Stephen M. Bess was appointed President of PLM Securities, Corp. in June, 1996 and 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 Corp., a manufacturer of computer peripheral equipment, from October 1975 to November 1978. David J. Davis was appointed Vice President and Controller of PLM International in January 1994. From March 1993 through January 1994, Mr. Davis was engaged as a consultant for various firms, including PLM. Prior to that Mr. Davis was Chief Financial Officer of LB Credit Corporation in San Francisco from July 1991 to March 1993. From April 1989 to May 1991, Mr. Davis was Vice President and Controller for ITEL Containers International Corporation which was located in San Francisco. Between May 1978 and April 1989, Mr. Davis held various positions with Transamerica Leasing Inc., in New York, including that of Assistant Controller for their rail leasing division. Frank Diodati was appointed President of PLM Railcar Management Services Canada Limited in 1986. Previously, Mr. Diodati was Manager of Marketing and Sales for G.E. Railcar Services Canada Limited. Steven O. Layne was appointed Vice President, PLM Transportation Equipment Corporation's Air Group in November 1992, was appointed Vice President and Director of PLM Worldwide Management Services, Ltd. in September, 1995. Mr. Layne was its Vice President, Commuter and Corporate Aircraft beginning in July 1990. Prior to joining PLM, Mr. Layne was the Director, Commercial Marketing for Bromon Aircraft Corporation, a joint venture of General Electric Corporation and the Government Development Bank of Puerto Rico. Mr. Layne is a major in the United States Air Force Reserves and senior pilot with 13 years of accumulated service. Stephen Peary became Vice President, Secretary, and General Counsel of PLM International in February 1988 and Senior Vice President in March 1994. Mr. Peary was Assistant General Counsel of PLM Financial Services, Inc. from August 1987 through January 1988. Previously, Mr. Peary was engaged in the private practice of law in San Francisco. Mr. Peary is a graduate of the University of Illinois, Georgetown University Law Center, and Boston University (Masters of Taxation Program). Thomas L. Wilmore was appointed Vice President - Rail, PLM Transportation Equipment Corporation, in March 1994 and has served as Vice President, Marketing for PLM Railcar Management Services, Inc. since May 1988. Prior to joining PLM, Mr. Wilmore was Assistant Vice President Regional Manager for MNC Leasing Corp. in Towson, Maryland from February 1987 to April 1988. From July 1985 to February 1987, he was President and Co-Owner of Guardian Industries Corp., Chicago, July Illinois and between December 1980 and July 1985, Mr. Wilmore was an Executive Vice President for its subsidiary, G.I.C. Financial Services Corporation. Mr. Wilmore also served as Vice President of Sales for Gould Financial Services located in Rolling Meadows, Illinois from June 1978 to December 1980. The directors of the General Partner are elected for a one-year term or until their successors are elected and qualified. There are no family relationships between any director or any executive officer of the General Partner. ITEM 11. EXECUTIVE COMPENSATION The Partnerships have no directors, officers, or employees. The Partnerships have no pension, profit sharing, retirement, or similar benefit plan in effect as of December 31, 1996. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners At December 31, 1996, no investor is known by the General Partner to beneficially own more than 5% of the Units of either TEP VIIB or TEP VIIC. (b) Security Ownership of Management Neither the General Partner and its affiliates nor any officer or director of the General Partner and its affiliates beneficially own any Units of either TEP VIIB or TEP VIIC. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (a) Transactions with Management and Others. During 1996, management fees to IMI were incurred in the amounts of $52,145 and $97,439 for TEP VIIB and TEP VIIC, respectively. During 1996, administrative services performed on behalf of the Partnerships were reimbursed to FSI and its affiliates in the amounts of $77,237 and $112,550 by TEP VIIB and TEP VIIC, respectively. During 1996, the unconsolidated special purpose entities (USPE's) paid or accrued (based on the Partnership's proportional share of ownership): management fees to IMI in the amounts of $3,056 and $15,596 for TEP VIIB and TEP VIIC, respectively; administrative services in the amounts of $594 for TEP VIIC. (b) Certain Business Relationships None. (c) Indebtedness of Management None. (d) Transactions with Promoters None. 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. (b) Reports on Form 8-K None. (c) Exhibits 4.Limited Partnership Agreement of each Partnership. Incorporated by reference to the Partnership's Registration Statement on Form S-1 (Reg. No. 2-93640) which became effective with the Securities and Exchange Commission on January 7, 1985. 10. Equipment Management Agreement between each Partnership and PLM Investment Management, Inc. Incorporated by reference to the Registration Statement on Form S-1 (Reg. No. 2-93640) which became effective with the Securities and Exchange Commission on January 7, 1985. 25. Powers of Attorney. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The Partnership has no directors or officers. The General Partner has signed on behalf of the Partnership by duly authorized officers. Dated: March 14, 1997 PLM Transportation Equipment Partners VIIB 1985 Income Fund Partnership By: PLM Financial Services, Inc. General Partner By: /s/ Douglas P. Goodrich ------------------------------- Douglas P. Goodrich President & Director By: /s/ David J. Davis ------------------------------- David J. Davis Vice President and Corporate Controller 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. Dated: March 14, 1997 PLM Transportation Equipment Partners VIIC 1985 Income Fund Partnership By: PLM Financial Services, Inc. General Partner By: /s/ Douglas P. Goodrich ----------------------------- Douglas P. Goodrich President and Director By: /s/ David J. Davis ----------------------------- David J. Davis Vice President and Corporate Controller Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following directors of the Partnerships' Managing General Partner on the dates indicated. Name Capacity Date *_____________________________ J. Alec Merriam Director-FSI March 14, 1997 *_____________________________ Robert L. Pagel Director-FSI March 14, 1997 * Stephen Peary, by signing his 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/ Stephen Peary - ----------------------- Stephen Peary Attorney-in-Fact PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND (A Limited Partnership) INDEX TO FINANCIAL STATEMENTS (Item 14(a)) TEP VIIB Page Report of Independent Auditors 26 Balance sheets at December 31, 1996 and 1995 27 Statements of income for the years ended December 31, 1996, 1995, and 1994 28 Statements of changes in partners' capital for the years ended December 31, 1996, 1995, and 1994 29 Statements of cash flows for the years ended December 31, 1996, 1995, and 1994 30 Notes to financial statements 31-35 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. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND (A Limited Partnership) INDEX TO FINANCIAL STATEMENTS (Item 14(a)) TEP VIIC Page Report of Independent Auditors 36 Balance sheets at December 31, 1996 and 1995 37 Statements of income for the years ended December 31, 1996, 1995, and 1994 38 Statements of changes in partners' capital for the years ended December 31, 1996, 1995, and 1994 39 Statements of cash flows for the years ended December 31, 1996, 1995, and 1994 40 Notes to financial statements 41-45 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. REPORT OF INDEPENDENT AUDITORS The Partners PLM Transportation Equipment Partners VIIB 1985 Income Fund: We have audited the financial statements of PLM Transportation Equipment Partners VIIB 1985 Income Fund as listed in the accompanying index. 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 conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The Partnership completed its tenth year of operations during 1995, and entered the liquidation phase of the Partnership. The General Partner is actively pursuing the sale of all of the Partnership's equipment with the intention of winding up the Partnership and distributing all available cash to the Partners. Management's plans in regard to this matter are more fully described in note 6. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PLM Transportation Equipment Partners VIIB 1985 Income Fund as of December 31, 1996, and 1995 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. /S/ KPMG PEAT MARWICK LLP - ----------------------------------- SAN FRANCISCO, CALIFORNIA March 14, 1997 PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND (A Limited Partnership) BALANCE SHEETS December 31, ASSETS
1996 1995 -------------------------------------- Transportation equipment on operating leases held for sale, at cost $ 3,550,990 $ 3,972,722 Less accumulated depreciation (3,427,418 ) (3,616,132 ) -------------------------------------- Net equipment 123,572 356,590 Cash and cash equivalents 269,628 293,808 Investment in unconsolidated special purpose entity -- 79,116 Accounts receivable, net of allowance for doubtful accounts of $5,082 in 1996 and $26,718 in 1995 127,105 135,320 Prepaid insurance 2,714 3,128 -------------------------------------- Total assets $ 523,019 $ 867,962 ====================================== LIABILITIES AND PARTNERS' CAPITAL Liabilities: Due to affiliates $ 4,641 $ 4,641 Accounts payable 32,221 21,292 Lessee deposits and engine reserves 615 260 -------------------------------------- Total liabilities 37,477 26,193 Partners' capital (deficit): Limited Partners (22,276 units) 578,736 931,401 General Partner (93,194 ) (89,632 ) -------------------------------------- Total partners' capital 485,542 841,769 -------------------------------------- Total liabilities and partners' capital $ 523,019 $ 867,962 ======================================
See accompanying notes to financial statements. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND (A Limited Partnership) STATEMENTS OF INCOME For the years ended December 31,
1996 1995 1994 ----------------------------------------------- Revenues: Lease revenue $ 410,917 $ 673,162 $ 786,981 Interest and other income 13,402 32,119 11,508 Gain from disposition of equipment 62,907 27,563 14,663 ---------------------------------------------- Total revenues 487,226 732,844 813,152 Expenses: Depreciation 204,118 278,129 293,591 Management fees to affiliate 52,145 55,690 57,109 Insurance expense 4,566 8,406 7,735 (Recovery of ) provision for bad debts (1,083) 35,082 17,754 Repairs and maintenance 120,060 159,069 175,420 General and administrative expenses to affiliates 77,237 130,286 127,227 Other general and administrative expenses 57,208 36,876 45,627 ---------------------------------------------- Total expenses 514,251 703,538 724,463 ---------------------------------------------- Equity in net income of unconsolidated special purpose entity 265,108 -- -- ---------------------------------------------- Net income $ 238,083 $ 29,306 $ 88,689 ============================================== Partners' share of net income: Limited Partners - 99% $ 235,702 $ 29,013 $ 87,802 General Partner - 1% 2,381 293 887 ---------------- ============================== Total $ 238,083 $ 29,306 $ 88,689 ============================================== Net income per Limited Partnership Unit (22,276 units) $ 10.58 $ 1.30 $ 3.94 ============================================== Cash distributions $ 394,310 $ 396,187 $ 475,421 ============================================== Cash distributions per Limited Partnership Unit $ 17.52 $ 17.61 $ 21.13 ============================================== Special cash distributions $ 200,000 $ -- $ -- ============================================== Special cash distributions per Limited Partnership Unit $ 8.89 $ -- $ -- ============================================== Total cash distributions per Limited Partnership Unit $ 26.41 $ 17.61 $ 21.13 ==============================================
See accompanying notes to financial statements. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND (A Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the years ended December 31, 1996, 1995, and 1994
Limited General Partners Partner Total ----------------------------------------------------- Partners' capital (deficit) at December 31, 1993 $ 1,677,478 $ (82,096 ) $ 1,595,382 Net income 87,802 887 88,689 Cash distributions (470,667 ) (4,754 ) (475,421 ) ----------------------------------------------------- Partners' capital (deficit) at December 31, 1994 1,294,613 (85,963 ) 1,208,650 Net income 29,013 293 29,306 Cash distributions (392,225 ) (3,962 ) (396,187 ) ----------------------------------------------------- Partners' capital (deficit) at December 31, 1995 931,401 (89,632 ) 841,769 Net income 235,702 2,381 238,083 Quarterly cash distributions (390,367 ) (3,943 ) (394,310 ) Special distributions (198,000 ) (2,000 ) (200,000 ) ----------------------------------------------------- Partners' capital (deficit) at December 31, 1996 $ 578,736 $ (93,194 ) $ 485,542 =====================================================
See accompanying notes to financial statements. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND (A Limited Partnership) STATEMENTS OF CASH FLOWS for the years ended December 31,
1996 1995 1994 ------------------------------------------------- Operating activities: Net income $ 238,083 $ 29,306 $ 88,689 Adjustments to reconcile net income to net cash provided by operating activities: Gain from disposition of equipment (62,907 ) (27,563 ) (14,663 ) Depreciation 204,118 278,129 293,591 Equity in net income of unconsolidated special purpose entity (265,108 ) -- -- Changes in operating assets and liabilities: Restricted cash -- (526 ) (93 ) Accounts receivable, net 8,215 (13,616 ) 7,178 Prepaid insurance 414 158 2,183 Due to affiliates -- 654 (8,502 ) Accounts payable 10,929 (11,186 ) 11,264 Prepaid deposits and engine reserves 355 (576 ) 222 ------------------------------------------------ ------------------------------- Net cash provided by operating activities 134,099 254,780 379,869 ------------------------------------------------ Investing activities: Capitalized equipment repairs -- (45 ) (877 ) Proceeds from disposition of equipment 91,807 76,396 69,114 Liquidation distributions from unconsolidated special purpose entity 303,144 -- -- Distributions from unconsolidated special purpose entity 41,080 -- -- ------------------------------------------------ Cash flows provided by investing activities 436,031 76,351 68,237 ------------------------------------------------ Cash flows used in financing activities: Cash distributions paid to Limited Partners (588,367 ) (392,225 ) (470,667 ) Cash distributions paid to General Partner (5,943 ) (3,962 ) (4,754 ) ------------------------------------------------ Cash used in financing activities (594,310 ) (396,187 ) (475,421 ) ------------------------------------------------ Net decrease in cash and cash equivalents (24,180 ) (65,056 ) (27,315 ) Cash and cash equivalents at beginning of year 293,808 358,864 386,179 ------------------------------------------------ Cash and cash equivalents at end of year $ 269,628 $ 293,808 $ 358,864 ================================================
See accompanying notes to financial statements. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996 1. Basis of Presentation Organization PLM Transportation Equipment Partners VIIB 1985 Income Fund, a California limited partnership (the Partnership) was formed on October 19, 1984. The Partnership engages in the business of owning and leasing transportation equipment. The Partnership commenced significant operations in August, 1985. PLM Financial Services, Inc. (FSI) is the General Partner. FSI is a wholly-owned subsidiary of PLM International, Inc. (PLM International) and manages the affairs of the Partnership. The net income (loss) and distributions of the Partnership are allocated 99% to the Limited Partners and 1% to the General Partner. The General Partner is entitled to an incentive fee equal to 15% of "Surplus Distributions" as defined in the Partnership Agreement remaining after the Limited Partners have received a certain minimum rate of return. These 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 and 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 Equipment Management Agreement, by PLM Investment Management, Inc. (IMI), a wholly-owned subsidiary of FSI. IMI receives an annual management fee payable monthly from the Partnership for managing the equipment (see Note 2). FSI, in conjunction with its subsidiaries, sells transportation equipment to investor programs and third parties, manages pools of transportation equipment under agreements with the investor programs, and is a general partner of other affiliated limited partnerships. Accounting for Leases The Partnership's leasing operations generally consist of operating leases. Under the operating lease method of accounting, the leased asset is recorded at cost and depreciated over its estimated useful life. Rental payments are recorded as revenue over the lease term. Lease origination costs are capitalized and amortized over the term of the lease. Depreciation Depreciation is computed on the 200% declining balance method based upon estimated useful lives of 15 years for rail equipment, 12 years for aircraft, trailers, and marine containers, and 8 years for tractors. The depreciation method changes to straight line when annual depreciation expense using the straight line method exceeds that calculated by the 200% declining balance method. Major expenditures which are expected to extend the useful lives or reduce future operating expenses of equipment are capitalized. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996 1. Basis of Presentation (continued): Transportation Equipment In March 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" (SFAS 121). This standard is effective for years beginning after December 15, 1995. In accordance with SFAS 121, the General Partner reviews the carrying value of its equipment portfolio at least annually in relation to expected future market conditions for the purpose of assessing recoverability of the recorded amounts. If projected future lease revenue plus residual values are less than the carrying value of the equipment, a loss on revaluation is recorded. No adjustments to reflect impairment of individual equipment carrying values were required for the year ended December 31, 1996. Investments in Unconsolidated Special Purpose Entities Until the third quarter of 1996, the Partnership had an interest in a special purpose entity which owned transportation equipment. This interest was accounted for using the equity method. The Partnership's investment in unconsolidated special purpose entity included acquisition and lease negotiation fees paid by the Partnership to TEC. The Partnership's equity interest in net income of unconsolidated special purpose entity 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 Maintenance costs are usually the obligation of the lessee. If they are not covered by the lessee they are charged against operations as incurred. Net Income (Loss) and Distributions per Limited Partnership Unit Net income (loss) per Limited Partnership Unit is computed based on the number of Limited Partnership Units outstanding during the period (22,276 for 1996, 1995, and 1994). The General Partner is allocated a 1% share of the net income (loss) and the Limited Partners are allocated a 99% share of the net income (loss). Cash distributions are recorded when paid. Cash distributions to investors in excess of net income are considered to represent a return of capital. Cash distributions to Limited Partners of $352,665, $363,212, and $382,865 in 1996, 1995, and 1994, respectively, were deemed to be a return of capital. 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 for the purposes of this presentation. 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 an annual management fee monthly attributable to either owned equipment or interests in equipment owned by the USPE's equal to the greater of 10% of the PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996 2. Transactions with General Partner and Affiliates (continued) Partnership's "operating cash flow", or 1/12 of 1/2% of the Partnership's "gross proceeds" as defined in the Partnership Agreement. Management fees of $4,641 were payable to IMI as of December 31, 1996 and 1995. The Partnership's proportional share of USPE's management fees expense during 1996 was $3,056. As of December 31, 1996, all of the Partnership's trailer equipment has been transferred into rental facilities operated by an affiliate of the General Partner. Revenues are earned by billing the rental facilities' customers monthly or quarterly under short-term rental agreements and are distributed as collected to the owners of the related equipment. Direct expenses associated with the equipment and an allocation of indirect expenses of rental facility operations are charged to the Partnership. The Partnership reimbursed FSI and its affiliates $77,237, $130,286, and $127,227 for administrative and other services performed on behalf of the Partnership in 1996, 1995, and 1994, respectively. At December 31, 1996 and 1995, $4,641 was due to FSI and its affiliates. 3. Equipment The components of owned equipment are as follows:
1996 1995 -------------------------------------- Trailers $ 3,146,140 $ 3,543,334 Marine containers 86,201 110,739 Rail equipment 318,649 318,649 -------------------------------------- 3,550,990 3,972,722 Less accumulated depreciation (3,427,418 ) (3,616,132 ) -------------------------------------- ====================================== Net equipment $ 123,572 $ 356,590 ======================================
At December 31, 1996, the Partnership owned 27 marine containers, 189 trailers, and five tank cars. Revenues are earned by placing the equipment under operating leases and are billed monthly or quarterly. Rents for all equipment are based on a fixed operating lease amount with the exception of marine containers and certain trailers, which earn revenue based on utilization. The Partnership's marine containers are leased to an operator of utilization-type pools which include equipment owned by unaffiliated parties. In such instances revenues received by the Partnership consist of a specified percentage of lease revenues generated by leasing the pooled equipment to sub-lessees, after deducting certain direct operating expenses of the pooled equipment. During 1996, the Partnership sold 19 trailers and disposed of 9 marine containers. During 1995, the Partnership sold eight trailers and disposed of 15 marine containers. All of the equipment owned by the Partnership is either operating in PLM-affiliated short-term rental facilities or on lease as of December 31, 1996. With the exception of one trailer, all of the equipment owned by the Partnership was either operating in PLM-affiliated short-term rental facilities or on lease as of December 31, 1995. The carrying value of equipment off lease was $6,500 at December 31, 1995. All leases are being accounted for as operating leases. Future minimum rentals receivable under non-cancelable leases at December 31, 1996 during each of the next five years are approximately $30,000 -1997; $30,000 - 1998; $10,000 - 1999; and $-0- thereafter. Contingent PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996 3. Equipment (continued) rentals based upon utilization amounted to $18,417 in 1996, $22,703 in 1995, and $24,079 in 1994. The lessees accounting for 10% or more of the total revenues during 1996, 1995, and 1994 were Kanakakee, Beaverville and Southern Railroad (40% in 1996, 18% in 1995, and 22% in 1994), and British Aerospace, Inc. (13% in 1996, 14% in 1995, and 13% in 1994). 4. Investment in Unconsolidated Special Purpose Entity Prior to 1996, the Partnership accounted for operating activities associated with joint ownership of rental equipment as undivided interests, including its proportionate share of each asset with similar wholly-owned assets in its financial statements. Under generally accepted accounting principles, the effects of such activities, if material, should be reported using the equity method of accounting. Therefore, effective January 1, 1996, the Partnership adopted the equity method to account for its investment in such jointly-held assets. The principle differences between the previous accounting method and the equity method relate to the presentation of activities relating to these assets in the income statement. Whereas, under the equity method of accounting the Partnership's proportionate share is presented as a single net amount, "equity in net income (loss) of unconsolidated special purpose entity", under the previous method, the Partnership's income statement reflected its proportionate share of each individual item of revenue and expense. Accordingly, the effect of adopting the equity method of accounting has no cumulative effect on previously reported partner's capital or on the Partnership's net income (loss) for the period of adoption. Because the effects on previously issued financial statements of applying the equity method of accounting to investments in jointly-owned assets are not considered to be material to such financial statements taken as a whole, previously issued financial statements have not been restated. However, certain items have been reclassified in the previously issued balance sheet to conform to the current period presentation. The following summarizes the financial information for the special purpose entities and the Partnership's interest therein as of and for the year ended December 31, 1996: Net Total USPE Interest of Partnership ------------------------------ Net Investments $ -- $ -- Revenues 199,477 61,120 Net Income 865,235 265,108 The "Investment in unconsolidated special purpose entity" includes a 31% interest in an entity which owns one commuter aircraft at December 31, 1995. The entity sold the aircraft in 1996. 5. 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 accounts of the Partnership. As of December 31, 1996, there were temporary differences of approximately $1,409,857 between the financial statement carrying values of assets and liabilities and the federal income tax bases of such assets and liabilities, principally due to differences in depreciation methods. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996 6. Liquidation and special distributions During the first quarter of 1995, the Partnership completed its 10th year of operations. As originally anticipated by the General Partner, the Partnership will be liquidated in an orderly manner in its 11th and 12th years of operation. The General Partner is actively marketing the remaining equipment portfolio with the intent of maximizing sale proceeds. As sale proceeds are received the General Partner intends to periodically declare special distributions to distribute the sale proceeds to the partners. During the liquidation phase of the Partnership the equipment will continue to be leased under operating leases until sold. Operating cash flows, to the extent they exceed Partnership expenses, will continue to be distributed on a quarterly basis to partners. The amounts reflected for assets and liabilities of the Partnership have not been adjusted to reflect liquidation values. The equipment portfolio continues to be carried at the lower of depreciated cost or fair value less cost to dispose. Although the General Partner 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. In 1996, the General Partner paid special distributions of $8.89 per weighted average Limited Partnership Unit. No special distributions were paid in 1995 and 1994. 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 equipment destructions, 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. REPORT OF INDEPENDENT AUDITORS The Partners PLM Transportation Equipment Partners VIIC 1985 Income Fund: We have audited the financial statements of PLM Transportation Equipment Partners VIIC 1985 Income Fund as listed in the accompanying index. 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 conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The Partnership completed its tenth year of operations during 1995, and entered the liquidation phase of the Partnership. The General Partner is actively pursuing the sale of all of the Partnership's equipment with the intention of winding up the Partnership and distributing all available cash to the Partners. Management's plans in regard to this matter are more fully described in note 6. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PLM Transportation Equipment Partners VIIC 1985 Income Fund as of December 31, 1996, and 1995 and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 1996 in conformity with generally accepted accounting principles. /S/ KPMG PEAT MARWICK LLP - ------------------------------ SAN FRANCISCO, CALIFORNIA March 14, 1997 PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND (A Limited Partnership) BALANCE SHEETS December 31, ASSETS
1996 1995 -------------------------------------- Transportation equipment on operating leases held for sale, at cost $ 4,069,971 $ 5,059,215 Less accumulated depreciation (3,861,489 ) (4,536,562 ) ------------------------------------- Net equipment 208,482 522,653 Cash and cash equivalents 416,360 551,094 Investments in unconsolidated special purpose entities 99,974 425,957 Accounts receivable less allowance for doubtful accounts of $633 in 1996 and $6,649 in 1995 64,261 143,225 Prepaid insurance 3,713 5,435 ------------------------------------- Total assets $ 792,790 $ 1,648,364 ===================================== LIABILITIES AND PARTNERS' CAPITAL Liabilities: Due to affiliates $ 7,026 $ 7,026 Accounts payable and accrued expenses 13,040 15,202 ------------------------------------- Total liabilities 20,066 22,228 Partners' capital (deficit): Limited Partners (33,727 units) 913,500 1,758,377 General Partner (140,776 ) (132,241 ) ------------------------------------- Total partners' capital 772,724 1,626,136 ------------------------------------- Total liabilities and partners' capital $ 792,790 $ 1,648,364 =====================================
See accompanying notes to financial statements. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND (A Limited Partnership) STATEMENTS OF INCOME For the years ended December 31,
1996 1995 1994 ---------------------------------------------------- Revenues: Lease revenue $ 406,874 $ 1,134,932 $ 1,616,995 Interest and other income 24,366 35,376 27,256 Gain from disposition of equipment 133,840 84,289 68,223 --------------------------------------------------- Total revenues 565,080 1,254,597 1,712,474 Expenses: Depreciation 241,688 511,267 557,465 Management fees to affiliate 97,439 87,968 113,015 Insurance expense 7,511 11,783 13,143 Bad debt expense 122 17,200 43,030 Repairs and maintenance 104,666 216,498 252,355 General and administrative expenses to affiliates 112,550 187,498 231,353 Other general and administrative expenses 53,900 47,209 60,891 --------------------------------------------------- Total expenses 617,876 1,079,423 1,271,252 Equity in net income of unconsolidated special purpose entities 653,740 -- -- --------------------------------------------------- Net income $ 600,944 $ 175,174 $ 441,222 =================================================== Partners' share of net income: Limited Partners - 99% $ 594,935 $ 173,422 $ 436,810 General Partner - 1% 6,009 1,752 4,412 =================================================== Total $ 600,944 $ 175,174 $ 441,222 =================================================== Net income per Limited Partnership Unit (33,727 units) $ 17.64 $ 5.14 $ 12.95 =================================================== Cash distributions $ 654,356 $ 847,539 $ 995,704 =================================================== Cash distributions per Limited Partnership Unit $ 19.21 $ 24.88 $ 29.23 =================================================== Special cash distributions $ 800,000 $ 200,000 $ 100,000 =================================================== Special cash distributions per Limited Partnership Unit $ 23.48 $ 5.87 $ 2.94 =================================================== Total cash distributions per Limited Partnership Unit $ 42.69 $ 30.75 $ 32.17 ===================================================
See accompanying notes to financial statements. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND (A Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the years ended December 31, 1996, 1995, and 1994
Limited General Partners Partners Total -------------------------------------------------------- Partners' capital (deficit) at December 31, 1993 $ 3,269,956 $ (116,973 ) $ 3,152,983 Net income 436,810 4,412 441,222 Quarterly cash distributions (985,747 ) (9,957 ) (995,704 ) Special distributions (99,000 ) (1,000 ) (100,000 ) -------------------------------------------------------- Partners' capital (deficit) at December 31, 1994 2,622,019 (123,518 ) 2,498,501 Net income 173,422 1,752 175,174 Quarterly cash distributions (839,064 ) (8,475 ) (847,539 ) Special distributions (198,000 ) (2,000 ) (200,000 ) -------------------------------------------------------- Partners' capital (deficit) at December 31, 1995 1,758,377 (132,241 ) 1,626,136 Net income 594,935 6,009 600,944 Quarterly cash distributions (647,812 ) (6,544 ) (654,356 ) Special distributions (792,000 ) (8,000 ) (800,000 ) -------------------------------------------------------- Partners' capital (deficit) at December 31, 1996 $ 913,500 $ (140,776 ) $ 772,724 ========================================================
See accompanying notes to financial statements. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND (A Limited Partnership) STATEMENTS OF CASH FLOWS for the years ended December 31,
1996 1995 1994 ------------------------------------------------------- Operating activities: Net income $ 600,944 $ 175,174 $ 441,222 Adjustments to reconcile net income to net cash provided by operating activities: Gain from disposition of equipment (133,840 ) (84,289 ) (68,223 ) Depreciation 241,688 511,267 557,465 Equity in net income of unconsolidated special purpose entity (653,740 ) -- -- Changes in operating assets and liabilities: Restricted cash -- (728 ) (710 ) Accounts receivable, net 78,964 9,115 66,762 Prepaid insurance 1,722 (516 ) 4,076 Due from affiliates -- 12,085 (5,092 ) Due to affiliates -- 7,026 -- Accounts payable (2,162 ) 4,041 (17,315 ) Prepaid deposits and engine reserves -- 797 (527 ) ------------------------------------------------------- ----------------------------------- Net cash provided by operating activities 133,576 633,972 977,658 ------------------------------------------------------- Investing activities: Capitalized equipment repairs -- (191 ) -- Proceeds from disposition of equipment 206,323 165,784 156,817 Liquidation distributions from unconsolidated special purpose entity 686,229 -- -- Distributions from unconsolidated special special purpose entities 293,494 -- -- ------------------------------------------------------- Cash flows provided by investing activities 1,186,046 165,593 156,817 ------------------------------------------------------- Financing activities: Cash distributions paid to Limited Partners (1,439,812 ) (1,037,064 ) (1,084,747 ) Cash distributions paid to General partner (14,544 ) (10,475 ) (10,957 ) ------------------------------------------------------- Cash used in financing activities (1,454,356 ) (1,047,539 ) (1,095,704 ) ------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (134,734 ) (247,974 ) 38,771 Cash and cash equivalents at beginning of year 551,094 799,068 760,297 ------------------------------------------------------- Cash and cash equivalents at end of year $ 416,360 $ 551,094 $ 799,068 =======================================================
See accompanying notes to financial statements. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996 1. Basis of Presentation Organization PLM Transportation Equipment Partners VIIC 1985 Income Fund, a California limited partnership (the Partnership) was formed on October 19, 1984 to engage in the business of owning and leasing transportation equipment. The Partnership commenced significant operations in May, 1985. PLM Financial Services, Inc. (FSI) is the General Partner. FSI is a wholly-owned subsidiary of PLM International, Inc. (PLM International) and manages the affairs of the Partnership. The net income (loss) and distributions of the Partnership are allocated 99% to the Limited Partners and 1% to the General Partner. The General Partner is entitled to an incentive fee equal to 15% of "Surplus Distributions" as defined in the Partnership Agreement remaining after the Limited Partners have received a certain minimum rate of return. These 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 and 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 Equipment Management Agreement, by PLM Investment Management, Inc. (IMI), a wholly-owned subsidiary of FSI. IMI receives an annual management fee payable monthly from the Partnership for managing the equipment (see Note 2). FSI, in conjunction with its subsidiaries, sells transportation equipment to investor programs and third parties, manages pools of transportation equipment under agreements with the investor programs, and is a general partner of other affiliated limited partnerships. Accounting for Leases The Partnership's leasing operations generally consist of operating leases. Under the operating lease method of accounting, the leased asset is recorded at cost and depreciated over its estimated useful life. Rental payments are recorded as revenue over the lease term. Lease origination costs are capitalized and amortized over the term of the lease. Depreciation Depreciation is computed on the 200% declining balance method, converting to the straight-line method during the second half of the equipments' estimated useful lives, based upon estimated useful lives of 12 years for aircraft, trailers, and marine containers, and 8 years for tractors. The depreciation method changes to straight line when annual depreciation expense using the straight line method exceeds that calculated by the 200% declining balance method. Major expenditures which are expected to extend the useful lives or reduce future operating expenses of equipment are capitalized. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996 1. Basis of Presentation (continued) Transportation Equipment In March 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" (SFAS 121). This standard is effective for years beginning after December 15, 1995. In accordance with SFAS 121, the General Partner reviews the carrying value of its equipment portfolio at least annually in relation to expected future market conditions for the purpose of assessing recoverability of the recorded amounts. If projected future lease revenue plus residual values are less than the carrying value of the equipment, a loss on revaluation is recorded. No adjustments to reflect impairment of individual equipment carrying values were required for the year ended December 31, 1996. Investments in Unconsolidated Special Purpose Entities The Partnership has interests in special purpose entities which own transportation equipment. These interests are accounted for using the equity method. The Partnership's investment in unconsolidated special purpose entities includes acquisition and lease negotiation fees paid by the Partnership to TEC. The Partnership's equity interest in net income of unconsolidated special purpose entities 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 Maintenance costs are usually the obligation of the lessee. If they are not covered by the lessee they are charged against operations as incurred. Net Income (Loss) and Distributions per Limited Partnership Unit Net income (loss) per Limited Partnership Unit is computed based on the number of Limited Partnership Units outstanding during the period (33,727 for 1996, 1995, and 1994). The General Partner is allocated a 1% share of the net income (loss). Cash distributions are recorded when paid. Cash distributions to investors in excess of net income are considered to represent a return of capital. Cash distributions to Limited Partners of $844,877, $863,642 and $647,937 in 1996, 1995, and 1994, respectively, were deemed to be a return of capital. 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 for the purposes of this presentation. Lessee security deposits and required reserves held by the Partnership are considered restricted cash. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996 2. General Partner and Transactions with Affiliates An officer of FSI contributed $100 of the Partnership's initial net capital. Under the Equipment Management Agreement, IMI receives an annual management fee monthly attributable to either owned equipment or interests in equipment owned by the USPE's equal to the greater of 10% of the Partnership's "operating cash flow", or 1/12 of 1/2% the Partnership's "gross proceeds" as defined in the Partnership Agreement. Management fees of $7,026 were payable to IMI as of December 31, 1996 and 1995. The Partnership's proportional share of USPE's management fees expense during 1996 was $15,596. As of December 31, 1996, all of the Partnership's trailer equipment has been transferred into rental facilities operated by an affiliate of the General Partner. Revenues collected under short-term rental agreements with the rental facilities' customers are distributed monthly to the owners of the related equipment. Direct expenses associated with the equipment and an allocation of indirect expenses of rental facility operations are billed to the Partnership. The Partnership reimbursed FSI and its affiliates $112,550, $187,498, and $231,353 for administrative and other services performed on behalf of the Partnership in 1996, 1995, and 1994, respectively. The Partnership's proportional share of USPE's administrative and other services was $594 during 1996. 3. Equipment The components of owned equipment are as follows:
1996 1995 -------------------------------------- Trailers $ 3,870,247 $ 4,833,449 Marine containers 199,724 225,766 -------------------------------------- 4,069,971 5,059,215 Less accumulated depreciation (3,861,489 ) (4,536,562 ) -------------------------------------- ====================================== Net equipment $ 208,482 $ 522,653 ======================================
At December 31, 1996 the Partnership owned 172 trailers, and 26 marine containers. Revenues are earned by placing the equipment under operating leases and are billed monthly or quarterly. Rents for all equipment are based on a fixed operating lease amount with the exception of marine containers. The Partnership's marine containers are leased to the operator of utilization-type pools which include equipment owned by unaffiliated parties. In such instances, revenues received by the Partnership consist of a specified percentage of lease revenues generated by leasing the pooled equipment to sub-lessees, after deducting certain direct operating expenses of the pooled equipment. All of the equipment owned by the Partnership was either operating in the PLM-affiliated short-term rental facilities or on lease as of December 31, 1996. During 1996, the Partnership sold 40 trailers and disposed of 10 marine containers. During 1995, the Partnership sold 14 trailers and disposed of 17 marine containers. All leases are being accounted for as operating leases. Future minimum rentals of owned and partially owned equipment (USPE's) under non-cancelable leases at December 31, 1996 during each of the next five years are approximately $174,000 - 1997; $29,000 - 1998; $-0- -1999 and thereafter. Contingent rentals based upon utilization amounted to $14,332 in 1996, $29,819 in 1995, and $29,339 in 1994. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996 3. Equipment (continued) The lessees accounting for 10% or more of the total revenues during 1996, 1995, and 1994 were Horizon Air Industries, Inc. (24% in 1996, 15% in 1995, and 18% in 1994), and British Aerospace, Inc. (19% in 1996, 20% in 1995, and 14% in 1994). 4. Investments in Unconsolidated Special Purpose Entities Prior to 1996, the Partnership accounted for operating activities associated with joint ownership of rental equipment as undivided interests, including its proportionate share of each asset with similar wholly-owned assets in its financial statements. Under generally accepted accounting principles, the effects of such activities, if material, should be reported using the equity method of accounting. Therefore, effective January 1, 1996, the Partnership adopted the equity method to account for its investment in such jointly-held assets. The principle differences between the previous accounting method and the equity method relate to the presentation of activities relating to these assets in the income statement. Whereas, under the equity method of accounting the Partnership's proportionate share is presented as a single net amount, "equity in net income (loss) of unconsolidated special purpose entities", under the previous method, the Partnership's income statement reflected its proportionate share of each individual item of revenue and expense. Accordingly, the effect of adopting the equity method of accounting has no cumulative effect on previously reported partner's capital or on the Partnership's net income (loss) for the period of adoption. Because the effects on previously issued financial statements of applying the equity method of accounting to investments in jointly-owned assets are not considered to be material to such financial statements taken as a whole, previously issued financial statements have not been restated. However, certain items have been reclassified in the previously issued balance sheet to conform to the current period presentation. The following summarizes the financial information for the special purpose entities and the Partnership's interest therein as of and for the year ended December 31, 1996: Net Total USPE Interest of Partnership ------------------------------ Net Investments $ 124,423 $ 99,974 Revenues 415,477 311,913 Net Income 931,963 653,740 The "Investments in unconsolidated special purpose entities" included a 69% interest in an entity which owns a commuter aircraft and a 80% interest in an entity which owns another commuter aircraft. The entity sold the commuter aircraft for which the Partnership had a 69% interest in 1996. 5. 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. At December 31, 1996, there were temporary differences of approximately $1,997,333 between the financial statement carrying values of assets and liabilities and the federal income tax bases of such assets and liabilities. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996 6. Liquidation and special distributions During the first quarter of 1995, the Partnership completed its 10th year of operations. As originally anticipated by the General Partner, the Partnership will be liquidated in an orderly manner in its 11th and 12th years of operation. The General Partner is actively marketing the remaining equipment portfolio with the intent of maximizing sale proceeds. As sale proceeds are received the General Partner intends to periodically declare special distributions to distribute the sale proceeds to the partners. During the liquidation phase of the Partnership the equipment will continue to be leased under operating leases until sold. Operating cash flows, to the extent they exceed Partnership expenses, will continue to be distributed on a quarterly basis to partners. The amounts reflected for assets and liabilities of the Partnership have not been adjusted to reflect liquidation values. The equipment portfolio continues to be carried at the lower of depreciated cost or fair value less cost to dispose. Although the General Partner estimates that there will be distributions after liquidation of assets and liabilities, the amounts cannot be accurately determined prior to actual liquidation of the equipment. Any excess proceeds over expected Partnership obligations will be distributed to the Partners throughout the liquidation period. Upon final liquidation, the Partnership will be dissolved. In 1996, 1995, and 1994, the General Partner paid special distributions of $23.48, $5.87, and $2.94 per weighted average Limited Partnership Unit. The Partnership is not permitted to reinvest proceeds from sales or liquidations of equipment. These proceeds, in excess of operational cash requirements, are periodically paid out to limited partners in the form of special distributions. The sales and liquidations occur because of equipment destructions, 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. PLM TRANSPORTATION EQUIPMENT PARTNERS VII 1985 INCOME FUND (A Limited Partnership) INDEX OF EXHIBITS Exhibit Page 4. Limited Partnership Agreement of each Partnership. * 10. Management Agreement between each Partnership and * PLM Investment Management, Inc. 25. Powers of Attorney 47-49 * Incorporated by reference. See page 20 of this report. EX-24 2 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That the undersigned does hereby constitute and appoint Robert N. Tidball, Stephen Peary, J. Michael Allgood and David J. Davis, jointly and severally, his true and lawful attorneys-in-fact, each with power of substitution, for him in any and all capacities, to do any and all acts and things and to execute any and all instruments which said attorneys, or any of them, may deem necessary or advisable to enable PLM Financial Services, Inc., as General Partner of PLM Transportation Equipment Partners VIIB 1985 Income Fund, to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules and regulations thereunder, in connection with the preparation and filing with the Securities and Exchange Commission of annual reports on Form 10-K on behalf of PLM Transportation Equipment Partners VIIB 1985 Income Fund, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned, in any and all capacities, to such annual reports, to any and all amendments thereto, and to any and all documents or instruments filed as a part of or in connection therewith; and the undersigned hereby ratifies and confirms all that each of the said attorneys, or his substitute or substitutes, shall do or cause to be done by virtue hereof. This Power of Attorney is limited in duration until May 1, 1997 and shall apply only to the annual reports and any amendments thereto filed with respect to the fiscal year ended December 31, 1996. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th day of February, 1997. /s/ Douglas P. Goodrich - ------------------------------------ Douglas P. Goodrich POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That the undersigned does hereby constitute and appoint Robert N. Tidball, Stephen Peary, J. Michael Allgood and David J. Davis, jointly and severally, his true and lawful attorneys-in-fact, each with power of substitution, for him in any and all capacities, to do any and all acts and things and to execute any and all instruments which said attorneys, or any of them, may deem necessary or advisable to enable PLM Financial Services, Inc., as General Partner of PLM Transportation Equipment Partners VIIB 1985 Income Fund, to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules and regulations thereunder, in connection with the preparation and filing with the Securities and Exchange Commission of annual reports on Form 10-K on behalf of PLM Transportation Equipment Partners VIIB 1985 Income Fund, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned, in any and all capacities, to such annual reports, to any and all amendments thereto, and to any and all documents or instruments filed as a part of or in connection therewith; and the undersigned hereby ratifies and confirms all that each of the said attorneys, or his substitute or substitutes, shall do or cause to be done by virtue hereof. This Power of Attorney is limited in duration until May 1, 1997 and shall apply only to the annual reports and any amendments thereto filed with respect to the fiscal year ended December 31, 1996. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th day of February, 1997. /s/ Robert L. Pagel - ----------------------------------- Robert L. Pagel POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That the undersigned does hereby constitute and appoint Robert N. Tidball, Stephen Peary, J. Michael Allgood and David J. Davis, jointly and severally, his true and lawful attorneys-in-fact, each with power of substitution, for him in any and all capacities, to do any and all acts and things and to execute any and all instruments which said attorneys, or any of them, may deem necessary or advisable to enable PLM Financial Services, Inc., as General Partner of PLM Transportation Equipment Partners VIIB 1985 Income Fund, to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules and regulations thereunder, in connection with the preparation and filing with the Securities and Exchange Commission of annual reports on Form 10-K on behalf of PLM Transportation Equipment Partners VIIB 1985 Income Fund, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned, in any and all capacities, to such annual reports, to any and all amendments thereto, and to any and all documents or instruments filed as a part of or in connection therewith; and the undersigned hereby ratifies and confirms all that each of the said attorneys, or his substitute or substitutes, shall do or cause to be done by virtue hereof. This Power of Attorney is limited in duration until May 1, 1997 and shall apply only to the annual reports and any amendments thereto filed with respect to the fiscal year ended December 31, 1996. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th day of February, 1997. /s/ J. Alec Merriam - ------------------------------------ J. Alec Merriam EX-27 3
5 12-MOS DEC-31-1996 DEC-31-1996 269,628 0 132,187 5,082 0 0 3,550,990 (3,427,418) 523,019 0 0 0 0 0 485,542 523,019 0 487,226 0 514,251 0 0 0 238,083 0 238,083 0 0 0 238,083 0 0
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