-----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, LM0URu4TV29b727yk7brogedrL/Wz2mcTprVT8EVtBtXTW2QLxnNV3L/DuDWHlLz B4RUAlnji6nqo/wToxwW/g== 0000754714-96-000001.txt : 19960329 0000754714-96-000001.hdr.sgml : 19960329 ACCESSION NUMBER: 0000754714-96-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND CENTRAL INDEX KEY: 0000754714 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 942946248 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14599 FILM NUMBER: 96540370 BUSINESS ADDRESS: STREET 1: ONE MARKET PLZ STEUART ST TOWER STREET 2: STE 900 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, 1995. [ ] 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 900, 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 45. Total number of pages: 48. 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, 1995, TEP VIIB owned the following equipment: one commuter aircraft, 36 marine containers, five tank cars, and 207 trailers. The commuter aircraft is jointly owned by TEP VIIB (31%) and TEP VIIC (69%). At December 31, 1995, 51% of the Partnership's trailer equipment operates in rental yards owned and maintained by an affiliate of the General Partner. Revenues collected under PLM-affiliated short-term rental agreements with the rental yards' customers are distributed monthly to the owners of the related equipment. Direct expenses associated with the equipment and an allocation of other direct expenses of the rental yard operations are billed to the Partnership. With the exception of one trailer with a net book value of $6,500, all equipment owned by TEP VIIB was on lease as of December 31, 1995. Lessees of the equipment in the TEP VIIB portfolio include, but are not limited to: British Aerospace, Trans Ocean Container Ltd., Midwest Coast, Dupont SA, Q & O Chemical 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, 1995, TEP VIIC owned the following equipment: 36 marine containers, 211 trailers, and two commuter aircraft. One commuter aircraft is jointly owned by TEP VIIC (69%) and TEP VIIB (31%). At December 31, 1995, all of the Partnership's trailer equipment operates in rental yards owned and maintained by an affiliate of the General Partner. The second aircraft is jointly owned by TEP VIIC (80%) and PLM International (20%). Revenues collected under PLM-affiliated short-term rental agreements with the rental yards' customers are distributed monthly to the owners of the related equipment. Direct expenses associated with the equipment and an allocation of other direct expenses of the rental yard operations are billed to the Partnership. All of the equipment owned by TEP VIIC was either operating in the rental facilities or on lease as of December 31, 1995. Lessees of the equipment in the TEP VIIC portfolio include, but are not limited to: British Aerospace, Horizon Air Industries, Inc., and Trans Ocean Container Ltd. (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, Polaris Aircraft Leasing Corp., 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 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.; (2) 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 In recent years, growth in the commuter aircraft industry has outpaced that of larger carriers. As larger operators have increasingly adopted a regional hub concept, air traffic has grown among commuter/regional airlines providing feeder service into these hubs. Many smaller communities served by 19-seat passenger aircraft do not generate sufficient air traffic to justify the 29 to 100-seat aircraft currently being acquired by larger operators. Recently, however, the U.S. Federal Aviation Administation (FAA) implemented regulatory actions requiring 19-seat passenger aircraft to come under the same operating rules as commercial jets. These changes will significantly impact direct operating costs for such smaller aircraft and will require the General Partner to remarket the Partnerships' Metro IIIs into international markets not affected by these regulations, a move it has already undertaken due to the higher lease rates achievable in these markets. Further, the industry-wide trend toward larger regional aircraft is expected to have a negative impact on demand for 19-passenger aircraft in the short term. (2) Marine Containers The container market ended 1994 with expectations that the strengthening market experienced late in the year would continue into 1995. Such was not the case as the usual seasonal slowdown during the post-Christmas time period extended longer than expected and utilization did not achieve 1994 levels. While per diem rates increased somewhat by summertime, they did not fully recover from the 8-12% decrease experienced during the preceding two years. Aggressive pricing by several major leasing companies attempting to capture greater market share is expected to put further pressure on refrigerated container utilization and per diem rates. On the secondary markets, there continues to be significant increases in supply as primarily operators dispose of large numbers of older equipment. Since the Partnerships own predominately older containers, they will continue to be impacted by these industry trends. During 1996, major leasing companies are expected to reduce purchases of new equipment in response to soft market conditions. This anticipated reduction in supply should lead to a strengthening in utilization and per diem rates later in the year as demand catches up to supply. (3) Railcars Nearly all the major railroads reported substantial revenue increases during 1995. As additional industry consolidation is expected in 1996, these mergers should produce further operating efficiencies leading to continued increases in revenues and profits. Car loadings rose approximately 3% during 1995 with chemicals, metals, and grain experiencing the largest gains. Car demand for liquefied petroleum gas and liquid fertilizer service was also strong throughout the year. The Partnerships' fleet experienced almost 100% utilization during 1995. The few cars out of service were undergoing scheduled maintenance or repair. The General Partner believes rates are at the top of the cycle for all types of cars owned by the Partnerships. With demand continuing high, rental rates for most types of cars owned by the Partnerships are expected to remain relatively strong during 1996. On the supply side, industry experts predict approximately 55,000 new car builds and 40,000 retirements for a net gain of about 1.2% in the total U.S. fleet during 1996. While car builders are still busy, orders are not coming in as rapidly as in the last two years. so it is likely additions will not significantly outpace retirements this year. (4) Over-the-Road Dry Trailers: The over-the-road dry trailer market remained strong in 1995 due to record freight movements and equipment utilization. The General Partner achieved excellent utilization levels in 1995 averaging over 85%. Current levels show some signs of softening demand in comparison to the record-setting levels of 1994, when users encountered up to 18 months of backlog for new equipment delivery. While new production is expected to decline over the next few years, this should not dramatically affect utilization levels, as plenty of older, obsolete equipment needs to be retired. The General Partner continues to transfer trailers with expiring lease terms to the short-term trailer rental facilities operated by PLM Rental, Inc. The General Partner believes the strong performance of units in these rental facilities reflects the demand for short-term leases mentioned above and expects this trend to continue as long as the current shortage of trailers exists. (5) Over-the-Road Refrigerated Trailers: After a record year in 1994, demand for refrigerated trailers softened in 1995. This softened demand affected overall performance in 1995. Adverse weather conditions reduced the volume of fresh fruit and produce available, so refrigerated equipment operators focused on hauling generic freight, adding to the dry freight market while reducing capacity and demand in temperature-controlled markets. Heavy consolidation in the trucking industry induced carriers to work off excess equipment inventory from 1994 levels. However, inventory is expected to return to more normal levels in 1996 and continue throughout the rest of the decade, as excess capacity is retired, newer refrigeration technology standards become more defined, and environmentally-damaging refrigerants are phased out of service. 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, 1995, 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 900, 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, 1995. 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, 1995 833 1,223
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 1995 1994 1993 1992 1991 ------------------------------------------------------------------------------------------------------------------------- Operating results: Total revenues $ 732,844 $ 813,152 $ 861,606 $ 915,874 $ 762,968 Loss on revaluation of equipment -- -- (65,475) (35,000) (40,000) Gain (loss) on disposition of equipment 27,563 14,663 (15,985) 2,562 20,633 Net income 29,306 88,689 139,613 189,710 27,699 At year-end: Total assets $ 891,678 $ 1,269,667 $ 1,653,415 $ 2,155,868 $ 2,931,754 Total liabilities 49,909 61,017 58,033 119,031 130,446 Cash distributions $ 396,187 $ 475,421 $ 581,068 $ 954,181 $ 408,440 Per limited partnership unit: Net income $ 1.30 $ 3.94 $ 6.20 $ 8.43 $ 1.23 Cash distributions $ 17.61 $ 21.13 $ 25.82 $ 42.41 $ 18.15 TEP VIIC Operating results: Total revenues $ 1,254,597 $ 1,712,474 $ 1,682,390 $ 1,822,559 $ 1,626,359 Loss on revaluation of equipment -- -- (11,698) -- -- Gain (loss) on disposition of equipment 84,289 68,223 (131,532) (9,970) 16,716 Net income 175,174 441,222 359,895 366,686 180,548 At year-end: Total assets $ 1,666,451 $ 2,526,952 $ 3,199,276 $ 4,154,778 $ 4,968,661 Total liabilities 40,315 28,451 46,293 141,876 168,911 Cash distributions $ 1,047,539 $ 1,095,704 $ 1,219,814 $ 1,153,534 $ 1,089,484 Per limited partnership unit: Net income $ 5.14 $ 12.95 $ 10.56 $ 10.76 $ 5.30 Cash distributions $ 30.75 $ 32.17 $ 35.81 $ 33.86 $ 31.98
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 5, 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, the effect of which was not material as the method previously employed by the Partnership was consistent with SFAS 121. 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, 1995. As of December 31, 1995, the General Partner estimated the fair market value of each Partnerships' equipment portfolio to be approximately: $1.8 million and $3.4 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, 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 $175,075 in 1995 from $191,026 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 $528,463 in 1995 from $533,437 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 $5,421 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, and a decline in utilization in the PLM-affiliated short-term rental facilities during 1995 and the dispositon 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 $237,074 in 1995 from $278,977 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 $842,349 in 1995 from $992,275 in 1994. The decrease is due primarily to: (a) a decrease of $52,851 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. Comparison of the Partnerships' Operating Results for the Years Ended December 31, 1994 and 1993 TEP VIIB: (A) Revenues Total revenues for the years ended December 31, 1994 and 1993, were $813,152 and $861,606, respectively. The decrease in 1994 revenue was attributable primarily to lower lease revenues, offset by higher interest and other income. (1) Lease revenue decreased to $786,981 in 1994 from $869,831 in 1993. The following table lists lease revenues earned by equipment type: For the year ended December 31, 1994 1993 --------------------------------- Trailers $ 631,161 $ 689,611 Aircraft 99,081 99,081 Rail equipment 32,660 41,025 Marine containers 24,079 40,114 ================================= $ 786,981 $ 869,831 ================================= Significant revenue component changes resulted primarily from: (a) Trailer revenues decreased due to the transition period of trailers operating on fixed-term leases to the PLM-affiliated short-term rental facilities during 1994, and the disposition of trailers during 1994; (b) Marine containers revenue decreased due to lower utilization and rates on the marine container fleet, and to the disposition of marine containers during 1994; (c) Railcar revenues decreased due to the transition period to new lessees which resulted in off lease time in the first and second quarter of 1994, and one tankcar which went off-lease during 1994. (2) Interest and other income increased to $11,508 in 1994 from $7,760 in 1993. The increase in 1994 was primarily attributable to higher average interest rates during 1994. (B) Expenses The Partnership's total expenses for the years ended December 31, 1994 and 1993 were $724,463 and $721,993, respectively. The decrease was attributable primarily to decreases in losses on revaluation of equipment, and depreciation expense, partially offset by an increase in repairs and maintenance and general and administrative expenses. (1) Direct operating expenses (defined as repairs and maintenance and insurance expense) increased to $191,026 in 1994 from $140,674 in 1993. The increase in repairs and maintenance is primarily attributed to an increase 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. (2) Indirect Operating Expenses (defined as depreciation expense, management fees to affiliate, bad debt expense, and general and administrative expenses) increased to $533,437 in 1994 from $515,844 in 1993. The increase is due primarily to: (a) an increase of $23,753 in general and administrative expenses primarily due to the increased overall fleet size in the rental facility and increased indirect costs associated with trailers in the PLM-affiliated short-term rental facilities; (b) an increase of $9,583 in bad debt expense due to the General Partner's evaluation of the collectability of the Partnership's trade accounts receivable; (c) a decrease of $14,076 in depreciation expense resulting from disposition of trailers and marine containers during 1994; (d) a decrease of $1,667 in management fees to affiliate due to a lower level of operating cash flow associated with lower lease revenue on fixed-term trailers, and lower utilization 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 $14,663 was realized from the sale or disposition of eight trailers and 24 marine containers in 1994. In 1993, the Partnership realized a loss of $15,985 from the sale of 17 autocarriers, six trailers and the disposition of 13 marine containers. (4) Loss on revaluation of equipment in 1993, was the result of the Partnership reducing the carrying value of 11 trailers, which were classified as held for sale at that time, by $65,475 to their estimated net realizable value of $77,000. With the exception of one trailer, which was subsequently sold during the third quarter of 1994, these trailers were subsequently sold during the fourth quarter of 1993. There were no losses on revaluation of equipment required in 1994. (C) Net Income As a result of all of the foregoing, net income for the year ended December 31, 1994, decreased to $88,689, from $139,613, for the year ended December 31, 1993. The Partnership's ability to operate or liquidate assets, secure leases, and re-lease those assets whose lease expire during the duration of the Partnership is subject to many factors, and the Partnership's performance in 1994 is not necessarily indicative of future periods. In 1994, TEP VIIB distributed $470,667 to the Limited Partners, or $21.13 per Unit. TEP VIIC: (A) Revenues Total revenues for the years ended December 31, 1994 and 1993, were $1,712,474 and $1,682,390, respectively. The decrease in 1994 revenue was attributable primarily to a decrease in lease revenues and lower interest and other income. (1) Lease revenue decreased in 1994 to $1,616,995 as compared to $1,775,449 in 1993. The following table lists lease revenues earned by equipment type:
For the year ended December 31, 1994 1993 ------------------------------------- Trailers $ 1,073,039 $ 1,207,383 Aircraft 514,617 514,617 Marine containers 29,339 53,449 ===================================== $ 1,616,995 $ 1,775,449 =====================================
Significant revenue component changes resulted primarily from: (a) Trailer revenues decreased due to dispositon of trailers in 1994 and a decrease in revenue generated by the Partnership's trailer equipment in fixed-term leases, which were transitioning into PLM-affiliated short-term rental facilities during 1994; (b) Marine container revenues decreased due to the lower utilization rates earned on the marine container fleet, and to the disposition of marine containers during 1994. (2) Interest and other income decreased to $27,256 in 1994 from $38,473 in 1993. The decrease in 1994 was primarily attributable to the collection in 1993 of $24,000 from the settlement of legal proceedings with a former lessee, offset by higher interest income in 1994 due to higher average interest rates in 1994. (B) Expenses The Partnership's total expenses for the years ended December 31, 1994 and 1993 were $1,271,252 and $1,322,495, respectively. The decrease was attributable primarily to decrease in loss on disposition of equipment, depreciation expense, management fees, and bad debt expense, offset by an increase in repairs and maintenance expense and general and administrative expenses. (1) Direct operating expenses (defined as repairs and maintenance expenses and insurance expense) increased to $278,977 in 1994 from $251,332 in 1993. The increase is primarily attributed to an increase 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 $992,275 in 1994 from $1,059,465 in 1993. The decrease is due primarily to: (a) a decrease of $69,940 in depreciation expense due to the disposition of equipment from the Partnership's equipment portfolio during 1994 and 1993; (b) a decrease of $12,594 in management fees to affiliate due to a lower level of operating cash flow associated with lower lease revenue on fixed-term trailers, 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) a decrease of $9,548 in bad debt expense due to the General Partner's evaluation of the collectability of trade accounts receivable; (d) an increase of $24,892 in general and administrative expenses primarily due to the increased overall fleet size in the rental facility and increased indirect costs associated with trailers in the PLM-affiliated short-term rental facilities. (3) Gain from disposition of equipment of $68,223 was realized from the sale or disposition of 18 trailers and 21 marine containers during 1994. In 1993, the Partnership realized a loss of $131,532 on the disposition of 11 marine containers and the sale of 26 trailers. (4) Loss on revaluation of equipment in 1993, was the result of the Partnership reducing the carrying value of two trailers, which were classified as held for sale at that time, by $11,698 to their estimated net realizable value of $14,000. These trailers were subsequently sold during the fourth quarter of 1993. There were no losses on revaluation of equipment required in 1994. (C) Net Income As a result of all the foregoing, net income for the year ended December 31, 1994, increased to $441,222 from $359,895 for the year ended December 31, 1993. 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 1994 is not necessarily indicative of future periods. In 1994, TEP VIIC distributed $1,084,747 to the Limited Partners, or $32.17 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, 1994. The Partnership's performance during 1994 is not necessarily indicative of future periods. Geographic Information The Partnerships operates their equipment in international markets. As such, the Partnerships are exposed to a variety of currency, political, credit and economic risks. Currency risks are at a minimum because all invoicing, with the exception of a small number of railcars operating in Canada, is conducted in U.S. dollars. Political risks are minimized generally through the avoidance of operations in countries that do not have a stable judicial system and established commercial business laws. Credit support strategies for lessees range from letters of credit supported by U.S. banks to cash deposits. Although these credit support mechanisms generally allow the Partnerships to maintain its lease yield, there are risks associated with slow-to-respond judicial systems when legal remedies are required to secure payment or repossess equipment. Economic risks are inherent in all international markets and the General Partner strive to minimize this risk with market analysis prior to committing equipment to a particular geographic area. Refer to the notes to the Financial statements for information on the revenues, income and assets in various geographic regions. Trends Inflation and changing prices did not materially impact the Partnerships' revenues or net income during the reported periods. 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. 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 60 Director, Chairman of the Board, PLM International, Inc.; Director, PLM Financial Services, Inc. Allen V. Hirsch 42 Director, Vice Chairman of the Board, Executive Vice President of PLM International, Inc.; Director and President, PLM Financial Services, Inc.; President, PLM Securities Corp., and PLM Transportation Equipment Corporation. Walter E. Hoadley 79 Director, PLM International, Inc. Robert L. Pagel 59 Director, Chairman of the Executive Committee, PLM International, Inc.; Director, PLM Financial Services, Inc. Harold R. Somerset 61 Director, PLM International, Inc. Robert N. Tidball 57 Director, President and Chief Executive Officer, PLM International, Inc. J. Michael Allgood 47 Vice President and Chief Financial Officer, PLM International, Inc. and PLM Financial Services, Inc. Stephen M. Bess 49 President, PLM Investment Management, Inc.; Vice President, PLM Financial Services, Inc. David J. Davis 39 Vice President and Corporate Controller, PLM International and PLM Financial Services, Inc. Frank Diodati 41 President, PLM Railcar Management Services Canada Limited. Douglas P. Goodrich 49 Senior Vice President, PLM International; Senior Vice President PLM Transportation Equipment Corporation; President PLM Railcar Management Services, Inc. Steven O. Layne 41 Vice President, PLM Transportation Equipment Corporation. Stephen Peary 47 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 53 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. Allen V. Hirsch became Vice Chairman of the Board and a Director of PLM International in April 1989. He is an Executive Vice President of PLM International and President of PLM Securities Corp. Mr. Hirsch became the President of PLM Financial Services, Inc. in January 1986 and President of PLM Investment Management, Inc. and PLM Transportation Equipment Corporation in August 1985, having served as a Vice President of PLM Financial Services, Inc. and Senior Vice President of PLM Transportation Equipment Corporation beginning in August 1984, and as a Vice President of PLM Transportation Equipment Corporation beginning in July 1982 and of PLM Securities Corp. from July 1982 to October 1, 1987. He joined PLM, Inc. in July 1981, as Assistant to the Chairman. Prior to joining PLM, Inc., Mr. Hirsch was a Research Associate at the Harvard Business School. From January 1977 through September 1978, Mr. Hirsch was a consultant with the Booz, Allen and Hamilton Transportation Consulting Division, leaving that employment to obtain his master's degree in business administration. 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 July 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 headquartered in Maryland. 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 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. Douglas P. Goodrich was 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. Steven O. Layne was appointed Vice President, PLM Transportation Equipment Corporation's Air Group in November 1992. 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, 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, 1994. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners At December 31, 1994, 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 1995, management fees to IMI were incurred in the amounts of $55,690 and $87,968 for TEP VIIB and TEP VIIC, respectively. During 1994, administrative services performed on behalf of the Partnerships were reimbursed to FSI and its affiliates in the amounts of $130,286 and $191,353 by TEP VIIB and TEP VIIC, respectively. (b) Certain Business Relationships None. (c) In debtedness 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. 24. Powers of Attorney. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The Partnership has no directors or officers. The General Partner has signed on behalf of the Partnership by duly authorized officers. Dated: March 26, 1996 PLM Transportation Equipment Partners VIIB 1985 Income Fund Partnership By: PLM Financial Services, Inc. General Partner By: *_______________________ Allen V. Hirsch President By: /s/David J. Davis ------------------------ David J. Davis Vice President and Corporate Controller * 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 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 26, 1996 PLM Transportation Equipment Partners VIIC 1985 Income Fund Partnership By: PLM Financial Services, Inc. General Partner By: *_______________________ Allen V. Hirsch President By: /s/ David J. Davis ------------------------ David J. Davis Vice President and Corporate Controller * 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 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 *_____________________________ Allen V. Hirsch Director-FSI March 26, 1996 *_____________________________ J. Alec Merriam Director-FSI March 26, 1996 *_____________________________ Robert L. Pagel Director-FSI March 26, 1996 * 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 25 Balance sheets at December 31, 1995 and 1994 26 Statements of income for the years ended December 31, 1995, 1994, and 1993 27 Statements of changes in partners' capital for the years ended December 31, 1995, 1994, and 1993 28 Statements of cash flows for the years ended December 31, 1995, 1994, and 1993 29 Notes to financial statements 30-34 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 35 Balance sheets at December 31, 1995 and 1994 36 Statements of income for the years ended December 31, 1995, 1994, and 1993 37 Statements of changes in partners' capital for the years ended December 31, 1995, 1994, and 1993 38 Statements of cash flows for the years ended December 31, 1995, 1994, and 1993 39 Notes to financial statements 40-44 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 10th 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 5. 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, 1995, and 1994 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP SAN FRANCISCO, CALIFORNIA March 26, 1996 PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND (A Limited Partnership) BALANCE SHEETS December 31, ASSETS
1995 1994 -------------------------------------- Transportation equipment on operating leases held for sale, at cost $ 4,881,455 $ 5,228,048 Less accumulated depreciation (4,430,159) (4,449,835) -------------------------------------- Net equipment 451,296 778,213 Cash and cash equivalents 293,808 358,864 Restricted cash 8,126 7,600 Accounts receivable, net of allowance for doubtful accounts of $22,056 in 1995 and $1,942 in 1994 135,320 121,704 Prepaid insurance 3,128 3,286 -------------------------------------- Total assets $ 891,678 $ 1,269,667 ====================================== LIABILITIES AND PARTNERS' CAPITAL Liabilities: Due to affiliates $ 4,641 $ 3,987 Accounts payable 21,292 32,478 Prepaid deposits and engine reserves 23,976 24,552 -------------------------------------- Total liabilities 49,909 61,017 Partners' capital (deficit): Limited Partners (22,276 units) 931,401 1,294,613 General Partner (89,632) (85,963) -------------------------------------- Total partners' capital 841,769 1,208,650 -------------------------------------- Total liabilities and partners' capital $ 891,678 $ 1,269,667 ======================================
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,
1995 1994 1993 ----------------------------------------------- Revenues: Lease revenue $ 673,162 $ 786,981 $ 869,831 Interest and other income 32,119 11,508 7,760 Gain (loss) from disposition of equipment 27,563 14,663 (15,985) ----------------------------------------------- Total revenues 732,844 813,152 861,606 Expenses: Depreciation 278,129 293,591 307,667 Management fees to affiliate 55,690 57,109 58,776 Insurance expense 8,406 7,735 7,385 Bad debt expense 35,082 17,754 8,171 Repairs and maintenance 166,669 183,291 133,289 General and administrative expenses to affiliates 130,286 127,227 86,899 Other general and administrative expenses 29,276 37,756 54,331 Loss on revaluation of equipment -- -- 65,475 ----------------------------------------------- Total expenses 703,538 724,463 721,993 ----------------------------------------------- Net income $ 29,306 $ 88,689 $ 139,613 =============================================== Partners' share of net income: Limited Partners - 99% $ 29,013 $ 87,802 $ 138,217 General Partner - 1% 293 887 1,396 =============================================== Total $ 29,306 $ 88,689 $ 139,613 =============================================== Net income per Limited Partnership Unit (22,276 units) $ 1.30 $ 3.94 $ 6.20 =============================================== Cash distributions $ 396,187 $ 475,421 $ 581,068 =============================================== Cash distributions per Limited Partnership Unit $ 17.61 $ 21.13 $ 25.82 ===============================================
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, 1995, 1994, and 1993
Limited General Partners Partner Total ----------------------------------------------------- Partners' capital (deficit) at December 31, 1992 $ 2,114,518 $ (77,681) $ 2,036,837 Net income 138,217 1,396 139,613 Cash distributions (575,257) (5,811) (581,068) ----------------------------------------------------- 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 =====================================================
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,
1995 1994 1993 ------------------------------------------------- Operating activities: Net income $ 29,306 $ 88,689 $ 139,613 Adjustments to reconcile net income to net cash provided by operating activities: Loss on revaluation of equipment -- -- 65,475 (Gain) loss from disposition of equipment (27,563) (14,663) 15,985 Depreciation 278,129 293,591 307,667 Changes in operating assets and liabilities: Restricted cash (526) (93) 45,672 Accounts receivable, net (13,616) 7,178 (3,498) Prepaid insurance 158 2,183 (1,952) Due to affiliates 654 (8,502) (25,097) Accounts payable (11,186) 11,264 10,263 Prepaid deposits and engine reserves (576) 222 (46,164) ------------------------------------------------- Net cash provided by operating activities 254,780 379,869 507,964 ------------------------------------------------- Investing activities: Capitalized equipment repairs (45) (877) (4,409) Proceeds from disposition of equipment 76,396 69,114 97,195 ------------------------------------------------- Cash flows provided by investing activities 76,351 68,237 92,786 ------------------------------------------------- Cash flows used in financing activities: Cash distributions paid to partners (396,187) (475,421) (581,068) ------------------------------------------------- Net (decrease) increase in cash and cash equivalents (65,056) (27,315) 19,682 Cash and cash equivalents at beginning of year 358,864 386,179 366,497 ------------------------------------------------- Cash and cash equivalents at end of year $ 293,808 $ 358,864 $ 386,179 =================================================
See accompanying notes to financial statements. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1995 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, syndicates investor programs, 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 affilated 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. Translation of Foreign Currency Transactions The Partnership is a domestic partnership, however, a limited number of the Partnership's transactions are denominated in a foreign currency. The Partnership's asset and liability accounts denominated in a foreign currency were translated into U.S. dollars at the rates in effect at the balance sheet dates, and revenue and expense items were translated at average rates during the year. Gains or losses resulting from foreign currency transactions are included in the results of operations and are not material. 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, 1995 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. The Partnership adopted SFAS 121 during 1995, the effect of which was not material as the method previously employed by the Partnership was consistent with SFAS 121. 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, 1995. 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. To meet the maintenance obligations of certain aircraft engines, escrow accounts are prefunded by the lessees. Such prefunded amounts are included in the balance sheet as restricted cash and engine reserves. 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 1995, 1994, and 1993). 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 on a GAAP (Generally Accepted Accounting Principles) basis. Cash distributions to Limited Partners of $363,212, $382,865, and $437,040 in 1995, 1994, and 1993, 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. 2. Transactions with General Partner and Affiliates As an officer of FSI contributed $100 of the Partnership's initial capital. Under the Equipment Management Agreement, IMI receives an annual management fee payable monthly equal to 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 Partnership Agreement. Management fees of $4,641 was payable to IMI as of December 31, 1995 and 1994. As of December 31, 1995, 51% 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 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. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1995 2. Transactions with General Partner and Affiliates (continued) The Partnership reimbursed FSI and its affiliates $130,286 for administrative and other services performed on behalf of the Partnership in 1995 ($127,227 in 1994 and $86,899 in 1993). At December 31, 1995, $4,641 was due toFSI and its affiliates ($3,989 at December 31, 1994). 3. Equipment The components of equipment are as follows:
1995 1994 -------------------------------------- Trailers $ 3,543,334 $ 3,849,499 Aircraft 908,733 908,733 Marine containers 110,739 151,167 Rail equipment 318,649 318,649 -------------------------------------- 4,881,455 5,228,048 Less accumulated depreciation (4,430,159) (4,449,835) -------------------------------------- ====================================== Net equipment $ 451,296 $ 778,213 ======================================
At December 31, 1995 the Partnership owned a 31% interest in a commuter aircraft (with the remainder owned by an affiliated partnership), 36 marine containers, 207 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 1995, the Partnership sold eight trailers and disposed of 15 marine containers. During 1994, the Partnership sold eight trailers and disposed of 24 marine containers. With the exception of one trailer, 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, 1995. The carrying value of equipment off lease was $6,500 at December 31, 1995. With the exception of one tank car, all equipment owned by TEP VIIB was either operating in the trailer rental facilities or on lease at December 31, 1994. The carrying value of equipment off lease was $16,750 at December 31, 1994. All leases are being accounted for as operating leases. Future minimum rentals receivable under non-cancelable leases at December 31, 1995 during each of the next five years are approximately $205,000 - 1996; $30,000 -1997; $30,000 - 1998; $10,000 - 1999; and $-0- thereafter. Contingent rentals based upon utilization amounted to $22,703 in 1995, $24,079 in 1994, and $40,114 in 1993. The lessees accounting for 10% or more of the total revenues during 1995, 1994, and 1993 were Kanakakee, Beaverville and Southern Railroad (18% in 1995, 22% in 1994, and 20% in 1993), and British Aerospace, Inc. (14% in 1995, 13% in 1994, and 11% in 1993). PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1995 3. Equipment (continued) The Partnership owns certain equipment which is leased and operated internationally. All leases relating to this equipment were denominated in U.S. dollars. The Partnership leases its aircraft, railcars, and trailers to lessees domiciled in one geographic region: North America. The marine containers are leased to lessees in different regions who operate the marine containers worldwide. The tables below set forth geographic information about the Partnership's equipment grouped by domicile of the lessee as of and for the years ended December 31, 1995, 1994, and 1993:
Revenues: Region 1995 1994 1993 ----------------------------------------------------- Marine containers Various $ 22,703 $ 24,079 $ 40,114 Railcars North America 28,049 32,660 41,025 Trailers North America 525,408 631,161 689,611 Aircraft North America 97,002 99,081 99,081 ----------------------------------------------------- Total revenues $ 673,162 $ 786,981 $ 869,831 =====================================================
The following table sets forth identifiable net income (loss) information by equipment type by region:
Net Income (loss): Region 1995 1994 1993 ----------------------------------------------------- Marine containers Various $ 20,256 $ 30,898 $ 32,174 Railcars North America 19,633 8,526 13,010 Trailers North America 34,400 (4,803) 191,799 Aircraft North America 38,373 46,201 40,538 ----------------------------------------------------- Total identifiable net income (loss) 112,662 80,822 277,521 Administrative and other net income (loss) (83,356) 7,867 (137,908) ----------------------------------------------------- Total net income (loss) $ 29,306 $ 88,689 $ 139,613 =====================================================
The net book value of these assets at December 31, 1995, 1994, and 1993 are as follows:
Region 1995 1994 1993 ----------------------------------------------------- Marine containers Various $ 11,863 $ 24,639 $ 48,333 Railcars North America 68,748 83,748 98,748 Trailers North America 275,979 525,708 790,966 Aircraft North America 94,706 144,118 187,331 ----------------------------------------------------- Total equipment $ 451,296 $ 778,213 $ 1,125,378 =====================================================
4. 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, 1995, there were temporary differences of approximately $1,166,353 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, 1995 5. 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 periodicially 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. 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 10th 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 5. 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, 1995, and 1994 and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 1995 in conformity with generally accepted accounting principles. /S/ KPMG PEAT MARWICK LLP SAN FRANCISCO, CALIFORNIA March 26, 1996 PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND (A Limited Partnership) BALANCE SHEETS December 31,
ASSETS 1995 1994 -------------------------------------- Transportation equipment on operating leases held for sale, at cost $ 9,069,165 $ 9,697,693 Less accumulated depreciation (8,120,555) (8,156,512) -------------------------------------- Net equipment 948,610 1,541,181 Cash and cash equivalents 551,094 799,068 Restricted cash 18,087 17,359 Accounts receivable less allowance for doubtful accounts of $6,649 in 1995 and $26,568 in 1994 143,225 152,340 Due from affiliates -- 12,085 Prepaid insurance 5,435 4,919 -------------------------------------- Total assets $ 1,666,451 $ 2,526,952 ====================================== LIABILITIES AND PARTNERS' CAPITAL Liabilities: Due to affiliates $ 7,026 $ -- Accounts payable 15,202 11,161 Prepaid deposits and engine reserves 18,087 17,290 -------------------------------------- Total liabilities 40,315 28,451 Partners' capital (deficit): Limited Partners (33,727 units) 1,758,377 2,622,019 General Partner (132,241) (123,518) -------------------------------------- Total partners' capital 1,626,136 2,498,501 -------------------------------------- Total liabilities and partners' capital $ 1,666,451 $ 2,526,952 ======================================
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,
1995 1994 1993 ---------------------------------------------------- Revenues: Lease revenue $ 1,134,932 $ 1,616,995 $ 1,775,449 Interest and other income 35,376 27,256 38,473 Gain (loss) from disposition of equipment 84,289 68,223 (131,532) ---------------------------------------------------- Total revenues 1,254,597 1,712,474 1,682,390 Expenses: Depreciation 511,267 557,465 627,405 Management fees to affiliate 87,968 113,015 125,609 Insurance expense 11,783 13,143 14,513 Bad debt expense 17,200 43,030 52,578 Repairs and maintenance 225,291 265,834 236,819 General and administrative expenses to affiliates 187,498 231,353 187,820 Other general and administrative expenses 38,416 47,412 66,053 Loss on revaluation of equipment -- -- 11,698 ---------------------------------------------------- Total expenses 1,079,423 1,271,252 1,322,495 ---------------------------------------------------- Net income $ 175,174 $ 441,222 $ 359,895 ==================================================== Partners' share of net income: Limited Partners - 99% $ 173,422 $ 436,810 $ 356,296 General Partner - 1% 1,752 4,412 3,599 ==================================================== Total $ 175,174 $ 441,222 $ 359,895 ==================================================== Net income per Limited Partnership Unit (33,727 units) $ 5.14 $ 12.95 $ 10.56 ==================================================== Cash distributions $ 847,539 $ 995,704 $ 1,049,476 ==================================================== Cash distributions per Limited Partnership Unit $ 24.88 $ 29.23 $ 30.81 ==================================================== Special cash distributions $ 200,000 $ 100,000 $ 170,338 ==================================================== Special cash distributions per Limited Partnership Unit $ 5.87 $ 2.94 $ 5.00 ==================================================== Total cash distributions per Limited Partnership Unit $ 30.75 $ 32.17 $ 35.81 ====================================================
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, 1995, 1994, and 1993
Limited General Partners Partners Total -------------------------------------------------------- Partners' capital (deficit) at December 31, 1992 $ 4,121,276 $ (108,374) $ 4,012,902 Net income 356,296 3,599 359,895 Cash distributions (1,207,616) (12,198) (1,219,814) -------------------------------------------------------- Partners' capital (deficit) at December 31, 1993 3,269,956 (116,973) 3,152,983 Net income 436,810 4,412 441,222 Cash distributions (1,084,747) (10,957) (1,095,704) -------------------------------------------------------- Partners' capital (deficit) at December 31, 1994 2,622,019 (123,518) 2,498,501 Net income 173,422 1,752 175,174 Cash distributions (1,037,064) (10,475) (1,047,539) -------------------------------------------------------- Partners' capital (deficit) at December 31, 1995 $ 1,758,377 $ (132,241) $ 1,626,136 ========================================================
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,
1995 1994 1993 ------------------------------------------------------- Operating activities: Net income $ 175,174 $ 441,222 $ 359,895 Adjustments to reconcile net income to net cash provided by operating activities: Loss on revaluation of equipment -- -- 11,698 (Gain) loss from disposition of equipment (84,289) (68,223) 131,532 Depreciation 511,267 557,465 627,405 Changes in operating assets and liabilities: Restricted cash (728) (710) 103,740 Accounts receivable, net 9,115 66,762 (51,486) Prepaid insurance (516) 4,076 (3,407) Due from affiliates 12,085) (5,092) -- Due to affiliates 7,026) -- 18,022 Accounts payable 4,041 (17,315) 22,468 Prepaid deposits and engine reserves 797 (527) (116,084) ------------------------------------------------------- Net cash provided by operating activities 633,972 977,658 1,103,783 ------------------------------------------------------- Investing activities: Capitalized equipment repairs (191) -- (5,482) Proceeds from disposition of equipment 165,784 156,817 324,507 ------------------------------------------------------- Cash flows provided by investing activities 165,593 156,817 319,025 ------------------------------------------------------- Financing activities: Cash distributions paid to partners (1,047,539) (1,095,704) (1,219,814) ------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (247,974) 38,771 202,994 Cash and cash equivalents at beginning of year 799,068 760,297 557,303 ------------------------------------------------------- Cash and cash equivalents at end of year $ 551,094 $ 799,068 $ 760,297 =======================================================
See accompanying notes to financial statements. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1995 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, syndicates investor programs, 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. Translation of Foreign Currency Transactions The Partnership is a domestic partnership, however, a limited number of the Partnership's transactions are denominated in a foreign currency. The Partnership's asset and liability accounts denominated in a foreign currency were translated into U.S. dollars at the rates in effect at the balance sheet dates, and revenue and expense items were translated at average rates during the year. Gains or losses resulting from foreign currency transactions are included in the results of operations and are not material. 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 PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1995 1. Basis of Presentation (continued) Depreciation (continued) which are expected to extend the useful lives or reduce future operating expenses of equipment are capitalized. 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. The Partnership adopted SFAS 121 during 1995, the effect of which was not material as the method previously employed by the Partnership was consistent with SFAS 121. 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, 1995. 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. To meet the maintenance obligations of certain aircraft engines, escrow accounts are prefunded by the lessees. Such prefunded amounts are included in the balance sheet as restricted cash and engine reserves. 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 1995, 1994, and 1993). 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 on a GAAP (Generally Accepted Accounting Principles) basis. Cash distributions to Limited Partners of $863,642, $647,937 and $851,320 in 1995, 1994, and 1993, 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. 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 payable monthly 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 and $12,739 were payable to IMI as of December 31, 1995 and 1994, respectively. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1995 2. General Partner and Transactions with Affiliates (continued) As of December 31, 1995, 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 $187,498 for administrative and other services performed on behalf of the Partnership in 1995 ($231,353 in 1994, $187,820 in 1993). At December 31, 1995, $7,026 was due to FSI and affiliates ($12,085 was due from FSI and affiliates at December 31, 1994). 3. Equipment The components of equipment are as follows:
1995 1994 -------------------------------------- Trailers $ 4,833,449 $ 5,362,929 Aircraft 4,009,950 4,009,950 Marine containers 225,766 324,814 -------------------------------------- 9,069,165 9,697,693 Less accumulated depreciation (8,120,555) (8,156,512) -------------------------------------- ====================================== Net equipment $ 948,610 $ 1,541,181 ======================================
At December 31, 1995 the Partnership owned a 69% interest and an 80% interest in two commuter aircraft respectively (with the remainder owned by affiliated entities), 211 trailers, and 36 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, 1995. During 1995, the Partnership sold 14 trailers and disposed of 17 marine containers. During 1994, the Partnership sold 18 trailers and disposed of 21 marine containers. All leases are being accounted for as operating leases. Future minimum rentals under non-cancelable leases at December 31, 1995 during each of the next five years are approximately $314,000 - 1996; $174,000 - 1997; $29,000 - 1998; $-0- -1999; and $-0- thereafter. Contingent rentals based upon utilization amounted to $29,819 in 1995, $29,339 in 1994, and $55,675 in 1993. The lessees accounting for 10% or more of the total revenues during 1995, 1994, and 1993 were Horizon Air Industries, Inc. (15% in 1995, 18% in 1994, and 16% in 1993), and British Aerospace, Inc. (20% in 1995, 14% in 1994, and 12% in 1993). PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1995 3. Equipment (continued) The Partnership owns certain equipment which is leased and operated internationally. All leases relating to this equipment were denominated in U.S. dollars. The Partnership leases its aircraft and trailers to lessees domiciled in one geographic region: North America. The marine containers are leased to lessees in different regions who operate the marine containers worldwide. The tables below set forth geographic information about the Partnership's equipment grouped by domicile of the lessee as of and for the years ended December 31, 1995, 1994, and 1993:
Revenues: Region 1995 1994 1993 ----------------------------------------------------- Marine containers Various $ 29,819 $ 29,339 $ 53,449 Trailers North America 707,321 1,073,039 1,207,383 Aircraft North America 397,792 514,617 514,617 ----------------------------------------------------- Total revenues $ 1,134,932 $ 1,616,995 $ 1,775,449 =====================================================
The following table sets forth identifiable income (loss) information by equipment type by region :
Net income (loss): Region 1995 1994 1993 ----------------------------------------------------- Marine containers Various $ 34,123 $ 19,854 $ 14,951 Trailers North America 90,872 99,024 467,739 Aircraft North America 155,032 245,315 243,980 ----------------------------------------------------- Total identifiable net income 280,027 364,193 726,670 Administrative and other net income (loss) (104,853) 77,029 (366,775) ----------------------------------------------------- Total net income $ 175,174 $ 441,222 $ 359,895 =====================================================
The net book value of these assets at December 31, 1995, 1994, and 1993 are as follows :
Region 1995 1994 1993 ----------------------------------------------------- Marine containers International $ 24,219 $ 53,026 $ 92,412 Trailers North America 498,434 839,959 1,218,196 Aircraft North America 425,957 648,196 876,632 ----------------------------------------------------- Total equipment $ 948,610 $ 1,541,181 $ 2,187,240 =====================================================
4. 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, 1995, there were temporary differences of approximately $1,508,724 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, 1995 5. 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 periodicially 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 1995, 1994, and 1993, the General Partner paid special distributions of $5.87, $2.94, and $5.00 per 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 becasue 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. 24. Powers of Attorney 46-48 * Incorporated by reference. See page 19 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 VIIC 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 VIIC 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, 1996 and shall apply only to the annual reports and any amendments thereto filed with respect to the fiscal year ended December 31, 1995. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 18th day of February, 1996. /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 VIIC 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 VIIC 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, 1996 and shall apply only to the annual reports and any amendments thereto filed with respect to the fiscal year ended December 31, 1995. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 18th day of February, 1996. /s/ Allen V. Hirsch ---------------------------------- Allen V. Hirsch 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 VIIC 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 VIIC 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, 1996 and shall apply only to the annual reports and any amendments thereto filed with respect to the fiscal year ended December 31, 1995. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 18th day of February, 1996. /s/ J. Alec Merriam ----------------------------------- J. Alec Merriam EX-27 3
5 12-MOS DEC-31-1995 DEC-31-1995 551,094 0 143,225 6,649 0 0 9,069,165 8,120,555 1,666,451 0 0 0 0 0 1,626,136 1,666,451 0 1,254,597 0 1,079,423 0 0 0 175,174 0 175,174 0 0 0 175,174 0 0
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