ITEM 1. BUSINESS
(A) Background
On October 5, 1985, PLM Financial Services, Inc. (FSI), a wholly-owned subsidiary of PLM International, Inc. (PLM International), filed a registration statement on Form S-1 with the Securities and Exchange Commission. The Form S-1 was filed with respect to a proposed offering of 160,000 limited partnership units (Units) in an equipment leasing program, PLM Transportation Equipment Partners IX 1986 Income Fund (Registrant). The Registrant's program consisted of four California limited partnerships: PLM Transportation Equipment Partners IXA 1986 Income Fund, PLM Transportation Equipment Partners IXB 1986 Income Fund, PLM Transportation Equipment Partners IXC 1986 Income Fund, and PLM Transportation Equipment Partners IXD 1986 Income Fund (each individually, the Partnership, together, the Partnerships). The Registrant's offering became effective on January 7, 1986. The Registrant's Partnerships engage in the business of owning and leasing a diversified portfolio of transportation equipment to be operated or leased to a variety of corporate lessees. FSI is the general partner (General Partner) of each of the Partnerships.
The Partnerships were formed to engage in the business of owning and managing diversified pools of transportation equipment. The 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 services necessary to manage transportation equipment on behalf of the Partnerships and to perform or contract for the performance of 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 IXA
The offering of limited partnership units (the "Units") of PLM Transportation Equipment Partners IXA 1986 Income Fund (TEP IXA or the Partnership) closed on May 23, 1986, having sold 24,285 Units. FSI contributed $100 for its 1% general partnership interest in TEP IXA.
As of December 31, 1996, TEP IXA owned the following equipment: 88 trailers, 107 marine containers, and one sidelift. During 1996, TEP IXA sold or disposed of two trailers, 10 railcars, and 18 marine containers. At December 31, 1996, all of the Partnership's trailer equipment was being operated in rental yards owned and maintained by an affiliate of the General Partner. Revenue collected under short-term rental agreements with the rental yards' customers are credited to the owners of the related equipment as received. Direct expenses associated with the equipment are charged directly to the Partnership. An allocation of other direct expenses of the rental yard operations are billed to the Partnership monthly. With the exception of one sidelift, all equipment was either held in short-term rental facilities operated by an affiliate or on lease as of December 31, 1996. Lessees of the TEP IXA equipment portfolio include, but are not limited to Transamerica Leasing.
TEP IXB
The offering of Units of PLM Transportation Equipment Partners IXB 1986 Income Fund (TEP IXB or the Partnership) closed on September 29, 1986, having sold 17,460 Units. FSI contributed $100 for its 1% general partnership interest in TEP IXB.
As of December 31, 1996, TEP IXB owned the following equipment: 32 refrigerated over-the-road trailers, 26 marine containers, and one sidelift. During 1996, TEP IXB sold or disposed of 14 railcars, nine trailers and four marine containers. In addition, the entity in which the Partnership had a 50% investment sold a commuter aircraft. At December 31, 1996, all of the partnership's trailer equipment was being operated in rental yards owned and maintained by an affiliate of the General Partner. Revenue collected under short-term rental agreements with the rental yards' customers are credited to the owners of the related equipment as received. Direct expenses associated with the equipment are charged directly to the Partnership. An allocation of other direct expenses of the rental yard operations are billed to the Partnership monthly. With the exception of one sidelift, all equipment was either held in short-term rental facilities operated by an affiliate or was on lease as of December 31, 1996. Lessees of the TEP IXB equipment portfolio include but are not limited to Transamerica Leasing.
TEP IXC
The offering of Units of PLM Transportation Equipment Partners IXC 1986 Income Fund (TEP IXC or the Partnership) closed on December 22, 1986, having sold 16,914 Units. FSI contributed $100 for its 1% general partnership interest in TEP IXC.
As of December 31, 1996, TEP IXC owned the following equipment: 125 trailers and five refrigerated marine containers. During 1996, TEP IXC sold or disposed of 24 trailers, five railcars, and one marine container. In addition, the entity in which the Partnership had a 30% investment sold a commuter aircraft. At December 31, 1996, all of the Partnership's trailer equipment was being operated in rental yards owned and maintained by an affiliate of the General Partner. Revenue collected under short-term rental agreements with the rental yards' customers are credited to the owners of the related equipment as received. Direct expenses associated with the equipment are charged directly to the Partnership. An allocation of other direct expenses of the rental yard operations are billed to the Partnership monthly. All equipment was either held in short-term rental facilities operated by an affiliate or on lease as of December 31, 1996. The lessees of the TEP IXC equipment portfolio include but are not limited to Transamerica Leasing.
TEP IXD
The offering of Units of PLM Transportation Equipment Partners IXD 1986 Income Fund (TEP IXD or the Partnership) closed on March 30, 1987, having sold 9,529 Units. FSI contributed $100 for the 1% general partnership interest in TEP IXD.
As of December 31, 1996, TEP IXD owned the following equipment: 46 trailers and 132 marine containers. During 1996, TEP IXD sold or disposed of 39 marine containers and nine trailers. At December 31, 1996, all of the Partnership's trailer equipment was being operated in rental yards owned and maintained by an affiliate of the General Partner. Revenue collected under short-term rental agreements with the rental yards' customers are credited to the owners of the related equipment as received. Direct expenses associated with the equipment are charged directly to the Partnership. An allocation of other direct expenses of the rental yard operations are billed to the Partnership monthly. All equipment in the TEP IXD portfolio was either held in short-term rental facilities operated by an affiliate or on lease as of December 31, 1996. Lessees of the TEP IXD equipment portfolio include but are not limited to Transamerica Leasing.
(C) Competition
(1) Operating Leases vs. Full Payout Leases.
Generally, the equipment owned by the Partnerships is leased out on an operating lease basis wherein the rents owed during the initial noncancelable 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 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), General Electric Railcar Services Corporation, Greenbrier Leasing Company, and other limited partnerships which lease the same types of equipment.
(D) Demand
The Partnerships invested in transportation-related capital equipment. The Partnerships' equipment is used primarily for the transport of materials. The following describes the markets for the Partnerships' equipment:
(1) Marine Containers
At the end of 1995, the consensus of industry sources was that 1996 would see both higher container utilization and strengthening of per diem lease rates. Such was not the case, as there was no appreciable cyclical improvement in the container market following the traditional winter slowdown. Industry utilization continues to be under pressure, with per diem rates being impacted as well.
A substantial portion of the Partnership's containers are on long-term utilization leases that were entered into with Trans Ocean Leasing as lessee. The industry has seen a major consolidation as Transamerica Leasing, late in the fourth quarter of 1996, acquired Trans Ocean Leasing. Transamerica Leasing is the second largest container leasing company in the world. Transamerica Leasing is the substitute lessee for Trans Ocean Leasing. Long term, such industry consolidation should bring more rationalization to the market and result in higher utilization and per diem rates.
(2) Over-the-Road Dry Trailers
The over-the-road dry trailer market was weak in 1996, with utilization down 15%. The trailer industry experienced a record year in 1994 for new production, and 1995 production levels were similar to 1994. However, in 1996, the truck freight recession, along with an overbuilding situation, contributed to 1996's poor performance. The year 1996 had too little freight and too much equipment industrywide.
(3) Over-the-Road Refrigerated Trailers
PLM experienced fairly strong demand levels in 1996 for its refrigerated trailers. With over 15% of the fleet in refrigerated trailers, PLM and the Partnerships are the largest supplier of short-term rental refrigerated trailers in the United States.
(E) Government Regulations
The use, maintenance, and ownership of equipment is regulated by federal, state, local, and/or foreign governmental authorities. Such regulations 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. Substantial portions of the Partnerships' equipment portfolio are either registered or operated internationally. Such equipment may be subject to adverse political, government, or legal actions, including the risk of expropriation or loss arising from hostilities. Certain of the Partnerships' equipment is subject to extensive safety and operating regulations which may require the removal from service or extensive modification, of such equipment to meet these regulations at considerable cost to the Partnership. Such regulations include (but are not limited to):
(1) the Montreal Protocol on Substances that Deplete the Ozone Layer and the U.S. Clean Air Act Amendments of 1990 which call for the control and eventual replacement of substances that have been found to cause or contribute significantly to harmful effects 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.
ITEM 2.
ITEM 2. PROPERTIES
The Partnerships neither own nor lease any properties other than the equipment they have purchased for leasing purposes. At December 31, 1996, each Partnership owned a portfolio of transportation equipment as described in Part I, Item 1. It is not contemplated that any more equipment will be acquired.
The Partnerships maintain their principal offices at One Market, Steuart Street Tower, Suite 800, San Francisco, California 94105-1301. All office facilities are provided by FSI without reimbursement by the Partnerships.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Partnerships' limited partners during the fourth quarter of its fiscal year ended December 31, 1996.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE PARTNERSHIPS' EQUITY AND RELATED UNITHOLDER MATTERS
Pursuant to the terms of the Partnerships' Agreements, the General Partner is generally entitled to a 1% interest in the profits and losses and distributions of each Partnership. The General Partner also is entitled to a special allocation of net profit or gains from sale of each Partnerships' assets during the liquidation phase in an amount equal to one ninety-ninth of the aggregate of the capital contribution made by the Limited Partners. The General Partner 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 as of December 31, 1996:
There are several secondary exchanges which may purchase or facilitate transactions of 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 the Units and none is likely to develop. Moreover, the Units are subject to substantial restrictions on transferability.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Table 5, below, lists selected financial data for the respective Partnerships:
TABLE 5
For the years ended December 31,
For the years ended December 31,
For the years ended December 31,
ITEM 7.
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 the 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 of during the time it is subject to lease agreements. Such disposal of equipment results unpredictably from the wear, tear, and general risk of normal operations.
(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. 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 is recorded. No adjustments to reflect impairment of individual equipment carrying values were required for the years ended December 31, 1996, and 1995.
As of December 31, 1996, the General Partner estimated the current fair market value of each Partnerships' equipment portfolio, including equipment owned by unconsolidated special purpose entities (USPE's), to be approximately : $1.0 million, $0.5 million, $1.0 million, and $0.7 million for TEP IXA, TEP IXB, TEP IXC ,and TEP IXD, respectively.
(D) Government Regulations
The General Partner operates the Partnerships' equipment in accordance with current regulations (see Item 1 (E) Government Regulations). However, the continuing implementation of new or modified regulations by some of the authorities mentioned previously, or others, may adversely affect the Partnerships' ability to continue to own or operate equipment in their portfolio. Additionally, regulatory systems vary from country to country, which may increase the burden to the Partnerships of meeting regulatory compliance for the same equipment operated between countries. 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
The General Partner intends to continue its strategy of closely matching the level of cash distributions to that of net operating cash flows. However, as stated above, the difficulty in predicting market conditions precludes the General Partner from accurately determining the impact of this strategy on liquidity. The Partnerships have entered into their liquidation phase and pursuant to the original operating plan, the Partnerships continue to market equipment for sale as current lease terms expire. The General Partner has not planned any expenditures past January 1, 1997, nor is it aware of any contingencies, that would require capital resources additional to those discussed above.
(F) Results of Operations - Year to Year Detail Comparison
Comparison of the Registrant's Operating Results for the Years Ended December 31, 1996 and 1995
TEP IXA
(A) Revenues
(1) Lease revenue decreased to $414,957 in 1996 from $547,246 in 1995. The following table lists lease revenues earned by equipment type:
For the year ended December 31, 1996 1995 --------------------------------- Trailers $ 263,473 $ 366,821 Marine containers 112,994 118,625 Rail equipment 38,490 61,800 ================================ $ 414,957 $ 547,246 ================================
The decline was due primarily to the following:
(a) Trailer revenue decreased $103,348 from 1996 levels due to the decline in utilization in the short-term rental facilities in 1996 compared to 1995 levels, and the sale or disposal of two trailers in 1996 and one in 1995;
(b) Marine container revenue decreased $5,631 due to a decline in utilization from 1995 levels, and the disposal of 18 marine containers in 1996 and 10 in 1995;
(c) Rail revenue decreased $23,310 from 1996 levels due to the sale of all railcars owned by the Partnership during the third quarter of 1996.
(2) Interest and other income decreased to $22,545 in 1996 from $41,201 in 1995 due primarily to lower cash balances available for investments and lower interest rates earned on invested cash.
(3) For the year ended December 31, 1996, the Partnership realized a gain of $340,836 on the sale or disposition of two trailers, 18 marine containers, and 10 railcars, compared to the same period in 1995, where the Partnership realized a gain of $555,733 on the sale or disposition of one trailer, one commuter aircraft, and 10 marine containers.
(B) Expenses
Total expenses for the years ended December 31, 1996 and 1995, were $457,903 and $670,557, respectively. The decrease in 1996 expenses was attributable primarily to decreased repairs and maintenance, depreciation expense, and general and administrative expense, offset by an increase in bad debt expense.
(1) Direct Operating Expenses (defined as repairs and maintenance and insurance) decreased to $64,875 in 1996 from $172,081 in 1995. This decrease was due to decreases in repairs and maintenance for trailers in the short-term rental facilities.
(2) Indirect Operating Expenses (defined as depreciation expense, management fees, bad debt expense and general and administrative expenses) decreased to $393,028 in 1996 from $498,476 in 1995. This change resulted from:
(a) a $114,277 decrease in depreciation expense from 1996 levels resulting from the sale or disposal of two trailers, 18 marine containers, and 10 railcars in 1996;
(b) a $58,310 decrease in general and administrative expense from 1995 levels due primarily to sale of the aircraft in the prior year, lower accounting costs, and lower administrative costs associated with the short-term rental facilities in 1996 compared with 1995 levels;
(c) a $66,292 increase in bad debt expense due to the General Partner's evaluation of the collectibility of the trade receivables.
(C) Net Income
As a result of all of the foregoing, net income for the year ended December 31, 1996, was $320,435 compared to $473,623 for the year ended December 31, 1995. The Partnership's ability to operate or liquidate assets, secure leases, and re-lease those assets whose leases expire during the duration of the Partnership is subject to many factors, and the Partnership's performance for the year ended December 31, 1996, is not necessarily indicative of future periods. In 1996, TEP IXA distributed $1,661,082 to the Limited Partners, or $68.40 per weighted average unit which included a special distribution of $57.07 per weighted average unit.
The Partnership's performance for the year ended December 31, 1996, is not necessarily indicative of future periods.
TEP IXB
(A) Owned equipment operations
Revenues less direct expenses (defined as repairs and maintenance and asset specific insurance expense) on owned equipment decreased for the year ended December 31, 1996, when compared to the same period of 1995. The following table presents revenues less direct expenses by owned equipment type:
Trailers: Trailer revenues and direct expenses were $154,805 and $42,370, respectively, for the twelve months ended December 31, 1996, compared to $219,600 and $67,618, respectively, during the same period of 1995. The decrease in net contribution was due to lower utilization of trailers in the short-term rental facilities and the disposition of trailers;
Railcar equipment: Railcar revenues and direct expenses were $67,953 and $5,277, respectively, for the twelve months ended December 31, 1996, compared to $86,537 and $6,556, respectively, during the same period of 1995. The decrease in net contribution was due to the sale of all railcars owned by the Partnership in the fourth quarter of 1996;
Marine containers: Marine container revenues and direct expenses were $26,960 and $210, respectively, for the twelve months ended December 31, 1996, compared to $34,915 and $762, respectively, during the same period of 1995. The number of marine containers owned by the Partnership has been declining due to sales and dispositions. The result of this declining fleet is a decrease in marine container net contribution.
(B) Indirect expenses related to owned equipment
Total indirect expenses of $269,262 for the year ended December 31, 1996, decreased from $366,772 for the same period of 1995. The variance is explained as follows:
(a) a $49,160 decrease in general and administrative expenses from 1995 levels. This reflects the decreased accounting costs and administrative costs associated with the short-term rental facilities;
(b) a $39,977 decrease in depreciation expense from 1995 levels reflecting assets sales or dispositions during 1996 and 1995;
(c) a $8,373 decrease in bad debt expense due to the General Partner's evaluation of the collectibility of trade receivables from trailer rental yard lessees.
(C) For the twelve months ended December 31, 1996, the Partnership realized a gain of $272,183 on the disposal of 14 railcars, four marine containers and nine trailers compared to 1995, where the Partnership realized a gain of $113,206 on the sale or disposition of 22 trailers and four marine containers.
(D) Interest and other income
Interest and other income decreased $4,849 in 1996 due primarily to lower interest rate earned on available cash invested.
(E) Equity in net income of unconsolidated special purpose entity
Equity in net income of unconsolidated special purpose entity was $250,928 for the twelve months ended December 31, 1996, and represents the operating income generated from the Partnership's interest in an entity which owned an aircraft, accounted for under the equity method (see Note 4 to the financial statements).
(C) Net Income
The Partnership generated net income of $473,377 for the year ended December 31, 1996, compared to $83,006 in the same period in 1995. The Partnership's ability to operate or liquidate assets, secure leases, and re-lease those assets whose leases expire during the duration of the Partnership is subject to many factors, and the Partnership's performance for the year ended December 31, 1996, is not necessarily indicative of future periods. For the year ended December 31, 1996, the Partnership distributed $842,864 to the Limited Partners, or approximately $48.28 per weighted average unit which included a special distribution of $25.52 per weighted average unit.
TEP IXC
(A) Owned equipment operations
Revenues less direct expenses (defined as repairs and maintenance and asset specific insurance expenses) on owned equipment decreased in 1996 when compared to the same period of 1995. The following table presents revenues less direct expenses by owned equipment type:
Trailers: Trailer revenues and direct expenses were $330,604 and $109,461, respectively, for the twelve months ended December 31, 1996, compared to $546,927 and $149,024, respectively, during the same period of 1995. The decrease of net contribution was due to lower utilization of trailers in the short-term rental facilities and the disposition of trailers;
Railcar equipment: Railcar revenues and direct expenses were $26,520 and $4,812, respectively, for the twelve months ended December 31, 1996, compared to $41,059 and $6,867, respectively during the same period of 1995. The decrease in net contribution was due to the sale of all railcars owned by the Partnership in the fourth quarter of 1996;
Marine containers: Marine container revenues and direct expenses were $5,579 and $78, respectively, for the twelve months ended December 31, 1996, compared to $11,507 and $241, respectively, during the same period of 1995. The number of marine containers owned by the Partnership has been declining due to sales and dispositions. The result of this declining fleet is a decrease in marine container net contribution.
(B) Indirect expenses related to owned equipment
Total indirect expenses of $384,061 for the year ended December 31, 1996, decreased from $448,414 for the same period of 1995. The variance is explained as follows:
(a) a $42,681 decrease in general and administrative expenses due to lower accounting costs and administrative costs associated with the short-term rental facilities due to a decreased volume of trailers operating in these facilities;
(b) a $26,636 decrease in depreciation expense from 1995 levels reflecting asset sales during 1996 and 1995;
(c) a $2,193 decrease in management fees due to lower levels of operating cash flow during the comparable periods. Monthly management fees are calculated as the greater of 10% of the Partnership's Operating Cash Flow, or 1/12 of 1/2% of the Partnership's Capital Contributions as defined in the Limited Partnership Agreement;
(d) a $7,157 increase in bad debt expense due to the General Partner's evaluation of the collectibility of trade receivables from trailer rental yard lessees.
(C) For the year ended December 31, 1996, the Partnership realized a gain of $114,942 on the sale of 24 trailers, five railcars and one marine container, compared to the same period in 1995, when the Partnership realized a gain of $229,599 on the sale or disposal of four trailers, five twin stack railcars, and one marine container.
(D) Interest and other income decreased $4,106 due to a lower interest income earned on available cash invested.
(E) Equity in net income of unconsolidated special purpose entity
Equity in net income of unconsolidated special purpose entity was $111,247 for the year ended December 31, 1996, and represents the net income generated from the Partnership's interest in an entity which owned an aircraft, accounted for under the equity method (see Note 4 to the financial statements).
(F) Net Income
The Partnership's net income decreased to $105,040 for the year ended December 31, 1996, from $259,541 in the same period in 1995. The Partnership's ability to operate or liquidate assets, secure leases, and re-lease those assets whose leases expire during the duration of the Partnership is subject to many factors, and the Partnership's performance for the year ended December 31, 1996, is not necessarily indicative of future periods. For the year ended December 31, 1996, the Partnership distributed $607,688 to the Limited Partners, or approximately $35.93 per weighted average unit which included a special distribution of $18.37 per weighted average unit.
TEP IXD
(A) Revenues
(1) Lease revenue decreased to $151,115 in 1996 from $267,141 in 1995. The following table lists lease revenues earned by equipment type:
For the year ended December 31, 1996 1995 --------------------------------- Trailers $ 100,780 $ 188,529 Marine containers 50,335 78,612 ================================ $ 151,115 $ 267,141 ================================
The decrease was due to the following:
(a) Trailer revenue decreased $87,749 in 1996 as compared to 1995 levels, due to lower utilization in short-term rental facilities operated by an affiliate of the General Partner and the sale of trailers during 1996;
(b) Marine container revenue decreased $28,277 in 1996 as compared to 1995 levels, primarily due to a decline in utilization levels in 1996 and the disposal of marine containers during 1996.
(2) Interest and other income decreased to $6,506 in 1996 from $23,986 in 1995 due to decrease in interest rates and lower cash balances in interest bearing accounts.
(3) Gain on disposition of equipment of $44,879 in 1996 resulted from the sale or disposal of 39 marine containers and nine trailers. The gain on disposition of equipment in 1995 totaled $83,235 which resulted from the sale or disposal of 45 marine containers and 30 trailers.
(B) Expenses
Total expenses for the years ended December 31, 1996 and 1995 were $219,171 and $328,311, respectively. The decrease in 1996 expenses was attributable primarily to decreased bad debt expense, repairs and maintenance, general and administrative expenses, and depreciation.
(1) Direct Operating Expenses (defined as repairs and maintenance and insurance) decreased to $30,997 in 1996 from $54,905 in 1995. This change resulted primarily from the disposition of trailers and containers in 1996.
(2) Indirect Operating Expenses (defined as depreciation and amortization expense, management fees, bad debt expense, and general and administrative expenses) decreased to $188,174 in 1996 from $273,406 in 1995. This change resulted from:
(a) a $33,903 decrease in bad debt expense due to the General Partner's evaluation of the collectibility of trade receivables;
(b) a $31,308 decrease in general and administrative expenses due to lower accounting costs and administrative costs associated with the short-term rental facilities;
(c) a $19,593 decrease in depreciation expense from 1996 levels reflecting assets sales during 1996 and 1995.
(C) Net Income (loss)
As a result of all of the foregoing, the Partnership incurred a net loss for the year ended December 31, 1996 of $16,671 compared with a net income of $46,051 for the year ended December 31, 1995. In 1996, TEP IXD distributed $281,245 to the Limited Partners, or $29.51 per weighted average unit which included a special distribution of $15.58 per weighted average unit.
The Partnership's performance for the year ended December 31, 1996, is not necessarily indicative of future periods.
Comparison of the Registrant's Operating Results for the Years Ended December 31, 1995 and 1994
TEP IXA
(A) Revenues
(1) Lease revenue decreased to $547,246 in 1995 from $682,844 in 1994. The following table lists lease revenues earned by equipment type:
For the year ended December 31, 1995 1994 --------------------------------- Trailers $ 366,821 $ 473,072 Marine containers 118,625 130,722 Rail equipment 61,800 61,800 Aircraft -- 17,250 ================================ $ 547,246 $ 682,844 ================================
The decline was due primarily to the following:
(a) Trailer revenue decreased $106,251 from 1994 levels due to the decline in utilization in the short-term rental facilities in 1995 compared to 1994 levels, and the sale or disposal of 12 trailers, one yardster and one forklift in 1994. Additionally, one trailer was disposed of in 1995;
(b) Aircraft revenue decreased $17,250 due to the sale of a commuter aircraft in the second quarter of 1995 which was structured as a sales-type lease. The income from this lease financing is now reported as interest income;
(c) Marine container revenue decreased $12,097 due to the disposal of 10 marine containers in 1995 and 6 in 1994, and a decline in utilization from 1994 levels.
(2) Interest and other income increased to $41,201 in 1995 from $9,228 in 1994 due primarily to an increase of $31,000 in finance lease income as the Partnership entered into a sales-type lease related to a commuter aircraft, and secondarily to higher interest rates earned on invested cash.
(3) For the year ended December 31, 1995, the Partnership realized a gain of $555,733 on the sale or disposition of one trailer, one commuter aircraft, and 10 marine containers, compared to the same period in 1994, where the Partnership realized a gain of $59,957 on the sale or disposition of 12 trailers, one yardster, one forklift, and six marine containers. The Partnership will receive future lease payments totaling $234,000 with an additional balloon payment of $919,012 at the end of the one-year lease term relating to the sales type lease of the commuter aircraft.
(B) Expenses
Total expenses for the years ended December 31, 1995 and 1994, were $670,557 and $884,838, respectively. The decrease in 1995 expenses was attributable primarily to decreased bad debt expense and depreciation expense, offset by increases in repairs and maintenance and general and administrative expense.
(1) Direct Operating Expenses (defined as repairs and maintenance and insurance) increased to $172,081 in 1995 from $132,056 in 1994. This increase was due to the refurbishment required on the Partnership's aircraft which came off-lease in the beginning of 1995, partially offset by a decrease in repairs and maintenance for trailers in the short-term rental facilities.
(2) Indirect Operating Expenses (defined as depreciation expense, management fees, bad debt expense and general and administrative expenses) decreased to $498,476 in 1995 from $752,782 in 1994. This change resulted from:
(a) a $167,819 decrease in bad debt expense due to the change in management's estimate of doubtful accounts in 1995;
(b) a $124,901 decrease in depreciation expense from 1994 levels resulting from the sale or disposal of one trailer, one commuter aircraft, and 10 marine containers in 1995;
(c) a $38,667 increase in general and administrative expense from 1994 levels due primarily to higher administrative costs associated with the short-term rental facilities in 1995 compared with 1994 levels due to a credit of $16,000 which was received on the short-term rental facilities in 1994 due to the closing one of the short-term rental facilities in 1994, no similar credit was received in 1995 and an increase in audit fees.
(C) Net Income
As a result of all of the foregoing, net income for the year ended December 31, 1995, was $473,623 compared with a net loss of $132,809 for the year ended December 31, 1994. In 1995, TEP IXA distributed $294,890 to the Limited Partners, or $12.14 per weighted average Unit.
The Partnership's performance for the year ended December 31, 1995, is not necessarily indicative of future periods.
TEP IXB
(A) Revenues
(1) Lease revenue decreased to $535,422 in 1995 from $813,960 in 1994. The following table lists lease revenues earned by equipment type:
For the year ended December 31, 1995 1994 --------------------------------- Trailers and tractors $ 219,599 $ 504,293 Aircraft 194,371 194,371 Rail equipment 86,537 75,741 Marine containers 34,915 39,555 ================================ $ 535,422 $ 813,960 ================================
The decline was due primarily to the following:
(a) Trailer and tractor revenue decreased $284,694 due to the sale of 22 trailers during 1995, and a decline in utilization in the short-term rental facilities and the off-lease status of the sidelift at the beginning of 1995;
(b) Railcar revenue increased $10,796 due to the off-lease status of railcars during 1994 and the sale of the letro porter in the third quarter of 1994;
(c) Marine container revenue decreased $4,640 due to the disposal of four containers in 1995.
(2) Interest and other income increased to $22,516 in 1995 from $16,696 in 1994 due primarily to higher interest rates and higher cash balances in interest bearing accounts.
(3) For the year ended December 31, 1995, the Partnership realized a gain of $113,206 on the sale of 22 trailers and the disposition of four marine containers, compared to the same period in 1994, where the Partnership realized a gain of $132,025 on the sale of 13 tractors, six trailers, and one letro porter and the disposition of five marine containers.
(B) Expenses
Total expenses for the years ended December 31, 1995 and 1994 were $588,138 and $683,209, respectively. The decrease in 1995 expenses was attributable primarily to decreased depreciation expense, management fees to affiliates, and bad debt expense, partially offset by increased repairs and maintenance and general and administrative expenses.
(1) Direct Operating Expenses (defined as repairs and maintenance and insurance) increased to $137,511 in 1995 from $127,540 in 1994. This change resulted primarily from an increase in the number of trailers coming off term leases requiring refurbishment prior to transitioning to the short-term rental facilities operated by an affiliate of the General Partner, and repairs required on several of the Partnership's railcars.
(2) Indirect Operating Expenses (defined as depreciation and amortization expense, management fees, bad debt expense and general and administrative expenses) decreased to $450,627 in 1995 from $555,669 in 1994. This change resulted primarily from:
(a) a $102,009 decrease in depreciation expense from 1994 levels reflecting asset sales during 1995;
(b) a $11,895 decrease in management fees to affiliate from 1994 levels due to the lower levels of operating cash flow in 1995 compared to 1994. 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 $7,575 decrease in bad debt expense due to change in management's estimate of doubtful accounts in 1995;
(d) a $16,437 increase in general and administrative expenses from 1994 levels. This reflects the increased administrative costs associated with the short-term rental facilities due to an increased volume of trailers operating in the facilities in 1995 as compared to 1994, and increase in audit fee.
(C) Net Income
As a result of all of the foregoing, net income for the year ended December 31, 1995, was $83,006 compared with net income of $279,472 for the year ended December 31, 1994. In 1995, TEP IXB distributed $667,434 to the Limited Partners, or $38.23 per weighted average Unit.
The Partnership's performance for the year ended December 31, 1995, is not necessarily indicative of future periods.
TEP IXC
(A) Revenues
(1) Lease revenue decreased to $667,893 in 1995 from $958,179 in 1994. The following table lists lease revenues earned by equipment type:
For the year ended December 31, 1995 1994 --------------------------------- Trailers and tractors $ 546,927 $ 767,520 Rail equipment 41,059 104,808 Aircraft 68,400 76,088 Marine containers 11,507 9,763 ================================ $ 667,893 $ 958,179 ================================
The decrease was due to the following:
(a) Trailer revenue decreased $220,593 in 1995 as compared to 1994 levels, due primarily to lower utilization in the short-term rental facilities in 1995, as compared to 1994, and the sale of four trailers in 1995;
(b) Rail revenue decreased $63,749 in 1995 compared to 1994. The decrease was due to the sale of five twin stack railcars in the first quarter of 1995;
(c) Aircraft revenue decreased $7,688 in 1995 as compared to 1994 levels. The decrease resulted from the terms of the original lease agreement which called for a decrease in rate in 1995.
(2) Interest and other income increased to $18,666 in 1995 from $9,370 in 1994 due primarily to higher interest rates and higher cash balances in interest bearing accounts.
(B) Expenses
Total expenses for the years ended December 31, 1995 and 1994 were $656,617 and $815,229, respectively. The decrease in 1995 expenses was attributable primarily to decreases in bad debt expenses, depreciation expense, general and administrative expense, repairs and maintenance, and management fees to affiliate.
(1) Direct Operating Expenses (defined as repairs and maintenance and insurance) decreased to $156,183 in 1995 from $187,140 in 1994. This decrease was due to a decrease in the number of trailers coming off term lease requiring refurbishment prior to transitioning to the short-term rental facilities operated by an affiliate of the General Partner.
(2) Indirect Operating Expenses (defined as depreciation expense, management fees, bad debt expense and general and administrative expenses) increased to $500,434 in 1995 from $628,089 in 1994. This change resulted primarily from:
(a) a $46,501 decrease in bad debt expense due to change in management's estimate of doubtful accounts in 1995;
(b) a $45,141 decrease in depreciation expense from 1994 reflecting asset sales during 1995 and 1994;
(c) a $25,440 decrease in general and administrative expenses primarily due to the decreased administrative costs associated with the short-term rental facilities due to decline in utilization in the short-term rental facilities, offset by an increase in audit fee;
(d) a $10,573 decrease in management fees due to decreased levels of operating cash flow during 1994. Management fees are calculated as the greater of 10% of the Partnership's Operating Cash Flow, or 1/12 of 1/2% of the Partnership's Gross Proceeds as defined in the Limited Partnership Agreement.
(3) During 1995, the Partnership realized a gain of $229,599 on the sale of four trailers, five railcars, and the disposition of one marine container, compared to the same period in 1994 when the Partnership realized a gain of $2,561 on the sale of four trailers and the disposition of three marine containers.
(C) Net Income
As a result of all of the foregoing, net income for the year ended December 31, 1995 was $259,541 compared with net income of $154,881 for the year ended December 31, 1994. In 1995, TEP IXC distributed $897,896 to the Limited Partners, or $53.09 per weighted average Unit.
The Partnership's performance for the year ended December 31, 1995, is revaluation not necessarily indicative of future periods.
TEP IXD
(A) Revenues
(1) Lease revenue decreased to $267,141 in 1995 from $545,035 in 1994. The following table lists lease revenues earned by equipment type:
For the year ended December 31, 1995 1994 --------------------------------- Trailers $ 188,529 $ 456,511 Marine containers 78,612 88,524 ================================ $ 267,141 $ 545,035 ================================
The decrease was due to the following:
(a) Trailer revenue decreased $267,982 in 1995 as compared to 1994 levels, due to the sale of 30 trailers during 1995 and lower utilization in short-term rental facilities operated by an affiliate of the General Partner;
(b) Marine container revenue decreased $9,912 in 1995 as compared to 1994 levels, primarily due to a decline in utilization levels in 1995 and the disposal of 45 20-foot dry marine containers during 1995.
(2) Interest and other income increased to $23,986 in 1995 from $21,274 in 1994 due to an increase in interest rates and higher cash balances in interest bearing accounts.
(3) Gain on disposition of equipment of $83,235 in 1995 resulted from the sale or disposal of 45 marine containers and 30 trailers. The gain on disposition of equipment in 1994 totaled $17,133 from the sale or disposal of 29 marine containers and two trailers.
(B) Expenses
Total expenses for the years ended December 31, 1995 and 1994 were $328,311 and $389,752, respectively. The decrease in 1995 expenses was attributable primarily to decreased depreciation and management fees, offset slightly by an increase in bad debt expense, repairs and maintenance, and general and administrative expenses.
(1) Direct Operating Expenses (defined as repairs and maintenance and insurance) decreased to $54,905 in 1995 from $57,449 in 1994. This change resulted primarily from the refurbishment of 30 trailers prior to being sold.
(2) Indirect Operating Expenses (defined as depreciation and amortization expense, management fees, bad debt expense, and general and administrative expenses) decreased to $273,406 in 1995 from $332,303 in 1994. This change resulted from:
(a) a $61,957 decrease in depreciation expense from 1994 levels reflecting assets sales during 1995 and 1994;
(b) a $13,499 decrease in management fees to affiliate from 1994 levels due to the lower level of operating cash flow during 1995. Management fees are calculated as the greater of 10% of the Partnership's operating cash flow, or 1/12 of 1/2% of the Partnership's Gross Proceeds as defined in the Limited Partnership Agreement;
(c) a $9,471 increase in bad debt expense due to change in management's estimate of doubtful accounts in 1995.
(C) Net Income
As a result of all of the foregoing, net income for the year ended December 31, 1995 was $46,051 compared with net income of $193,690 for the year ended December 31, 1994. In 1995, TEP IXD distributed $855,090 to the Limited Partners, or $89.74 per weighted average Unit.
The Partnership's performance for the year ended December 31, 1995, is not necessarily indicative of future periods.
Geographic Information
The Partnerships operate their equipment in international markets. Although these operations expose the Partnerships to certain currency, political, credit and economic risks, the General Partner believes these risks are minimal or has implemented strategies to control the risks as follows: Currency risks are at a minimum because all invoicing, with the exception of a small number of railcars operating in Canada, is conducted in U.S. dollars. Political risks are minimized generally through the avoidance of operations in countries that do not have a stable judicial system and established commercial business laws. Credit support strategies for lessees range from letters of credit supported by U.S. banks to cash deposits. Although these credit support mechanisms generally allow the Partnership to maintain its lease yield, there are risks associated with slow-to-respond judicial systems when legal remedies are required to secure payment or repossess equipment. Economic risks are inherent in all international markets and the General Partner strives to minimize this risk with market analysis prior to committing equipment to a particular geographic area. Refer to the Financial Statements, Note 3 for information on the revenues, income, and assets in various geographic regions.
Revenues and net operating income by geographic region are impacted by the time period the asset is owned and the useful life ascribed to the asset for depreciation purposes. Net income (loss) from equipment is significantly impacted by depreciation charges which are greatest in the early years due to the General Partner's decision to use the 200% declining balance method of depreciation. The relationships of geographic revenues, net income (loss) and net book value are expected to significantly change in the future as equipment is sold in various equipment markets and geographic areas. An explanation of the current relationships is presented below:
TEP IXA:
The Partnership's equipment on lease to U.S. domiciled lessees accounted for 73% of the revenues generated by owned equipment while net income accounted for $329,511 of the $320,435 in net income for the entire Partnership. The primary reason for this relationship is due to the fact that the Partnership depreciates its rail equipment over a fifteen year period versus twelve years for other equipment types owned and leased in other geographic regions. Since all the railcars owned by the Partnership were sold, the relationship of revenue to net operating income for this geographic region will be based on only trailers in the future. The trailers leased to U.S. domiciled lessees are expected to be continuously profitable in the near future, as the revenue from the trailers exceeds the operating costs, and the depreciation recorded by the partnership declines in future periods.
TEP IXC:
The Partnership's owned equipment and equipment owned by USPE's on lease to U.S. domiciled lessees accounted for 95% of the revenues generated by owned equipment and equipment owned by USPE's while net income accounted for $84,619 of the $105,040 in net income for the entire Partnership. Since all the railcars owned by the Partnership were sold, the relationship of revenue to net income for this geographic region will be based on only trailers in the future. The trailers leased to U.S. domiciled lessees are expected to be continuously profitable in the near future, as the revenue from the trailers exceeds the operating costs, and the depreciation recorded by the partnership declines in future periods.
Australian operations consisted of an interest in an aircraft which was sold during 1996.
Forward Looking Information
Except for historical information contained herein, the discussion in this Form 10-K contains forward-looking statements that involve risks and uncertainties, such as statements of the Partnerships' plans, objectives, expectations and intentions. The cautionary statements made in this Form 10-K should be read as being applicable to all related forward-looking statements wherever they appear in this Form 10-K. The Partnerships' actual results could differ materially from those discussed here.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements for the Partnerships are listed on the Index to Financial Statements and Financial Statement Schedules included in Item 14 of this Annual Report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
(This space left intentionally blank)
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
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:
J. Alec Merriam was appointed Chairman of the Board of Directors of PLM International in September 1990, having served as a director since February 1988. In October 1988 he became a member of the Executive Committee of the Board of Directors of PLM International. From 1972 to 1988 Mr. Merriam was Executive Vice President and Chief Financial Officer of Crowley Maritime Corporation, a San Francisco area-based company engaged in maritime shipping and transportation services. Previously, he was Chairman of the Board and Treasurer of LOA Corporation of Omaha, Nebraska and served in various financial positions with Northern Natural Gas Company, also of Omaha.
Douglas P. Goodrich was elected to the Board of Directors in July 1996, appointed Director and President of PLM Financial Services, Inc. in June, 1996, and appointed Senior Vice President of PLM International in March 1994. Mr. Goodrich has also served as Senior Vice President of PLM Transportation Equipment Corporation since July 1989, and as President of PLM Railcar Management Services, Inc. since September 1992 having been a Senior Vice President since June 1987. Mr. Goodrich was an Executive Vice President of G.I.C. Financial Services Corporation, a subsidiary of Guardian Industries Corp. of Chicago, Illinois from December 1980 to September 1985.
Dr. Hoadley joined PLM International's Board of Directors and its Executive Committee in September, 1989. He served as a Director of PLM, Inc. from November 1982 to June 1984 and PLM Companies, Inc. from October 1985 to February 1988. Dr. Hoadley has been a Senior Research Fellow at the Hoover Institute since 1981. He was Executive Vice President and Chief Economist for the Bank of America from 1968 to 1981 and Chairman of the Federal Reserve Bank of Philadelphia from 1962 to 1966. Dr. Hoadley has also 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.
Robert N. Tidball was appointed President and Chief Executive Officer of PLM International in March 1989. At the time of his appointment, he was Executive Vice President of PLM International. Mr. Tidball became a director of PLM International in April, 1989 and a member of the Executive Committee of the Board of Directors of PLM International in September 1990. Mr. Tidball was elected President of PLM Railcar Management Services, Inc. in January 1986. Mr. Tidball was Executive Vice President of Hunter Keith, Inc., a Minneapolis-based investment banking firm, from March 1984 to January 1986. Prior to Hunter Keith, Inc., he was Vice President, a General Manager and a Director of North American Car Corporation, and a Director of the American Railcar Institute and the Railway Supply Association.
J. Michael Allgood was appointed Vice President and Chief Financial Officer of PLM International in October 1992. Between July 1991 and October 1992, Mr. Allgood was a consultant to various private and public sector companies and institutions specializing in financial operational systems development. In October 1987, Mr. Allgood co-founded Electra Aviation Limited and its holding company, Aviation Holdings Plc of London where he served as Chief Financial Officer until July 1991. Between June 1981 and October 1987, Mr. Allgood served as a First Vice President with American Express Bank, Ltd. In February 1978, Mr. Allgood founded and until June 1981, served as a director of Trade Projects International/Philadelphia Overseas Finance Company, a joint venture with Philadelphia National Bank. From March 1975 to February 1978, Mr. Allgood served in various capacities with Citibank, N.A.
Stephen M. Bess was appointed President of PLM Securities Corp. in June, 1996 and President of PLM Investment Management, Inc. in August 1989, having served as Senior Vice President of PLM Investment Management, Inc. beginning in February 1984 and as Corporate Controller of PLM Financial Services, Inc. beginning in October 1983. Mr. Bess served as Corporate Controller of PLM, Inc., beginning in December 1982. Mr. Bess was Vice President-Controller of Trans Ocean Leasing Corporation, a container leasing company, from November 1978 to November 1982, and Group Finance Manager with the Field Operations Group of Memorex Corp., a manufacturer of computer peripheral equipment, from October 1975 to November 1978.
David J. Davis was appointed Vice President and Controller of PLM International in January 1994. From March 1993 through January 1994, Mr. Davis was engaged as a consultant for various firms, including PLM. Prior to that Mr. Davis was Chief Financial Officer of LB Credit Corporation in San Francisco from July 1991 to March 1993. From April 1989 to May 1991, Mr. Davis was Vice President and Controller for ITEL Containers International Corporation which was located in San Francisco. Between May 1978 and April 1989, Mr. Davis held various positions with Transamerica Leasing Inc., in New York, including that of Assistant Controller for their rail leasing division.
Frank Diodati was appointed President of PLM Railcar Management Services Canada Limited in 1986. Previously, Mr. Diodati was Manager of Marketing and Sales for G.E. Railcar Services Canada Limited.
Steven O. Layne was appointed Vice President, PLM Transportation Equipment Corporation's Air Group in November 1992, and was appointed Vice President and Director of PLM Worldwide Management Services, Ltd. in September, 1995. Mr. Layne was its Vice President, Commuter and Corporate Aircraft beginning in July 1990. Prior to joining PLM, Mr. Layne was the Director, Commercial Marketing for Bromon Aircraft Corporation, a joint venture of General Electric Corporation and the Government Development Bank of Puerto Rico. Mr. Layne is a major in the United States Air Force Reserves and senior pilot with 13 years of accumulated service.
Stephen Peary became Vice President, Secretary, and General Counsel of PLM International in February 1988 and Senior Vice President in March 1994. Mr. Peary was Assistant General Counsel of PLM Financial Services, Inc. from August 1987 through January 1988. Previously, Mr. Peary was engaged in the private practice of law in San Francisco. Mr. Peary is a graduate of the University of Illinois, Georgetown University Law Center, and Boston University (Masters of Taxation Program).
Thomas L. Wilmore was appointed Vice President - Rail, PLM Transportation Equipment Corporation, in March 1994 and has served as Vice President, Marketing for PLM Railcar Management Services, Inc. since May 1988. Prior to joining PLM, Mr. Wilmore was Assistant Vice President Regional Manager for MNC Leasing Corp. in Towson, Maryland from February 1987 to April 1988. From July 1985 to February 1987, he was President and Co-Owner of Guardian Industries Corp., Chicago, 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.
ITEM 11. EXECUTIVE COMPENSATION
The Partnerships have no directors, officers, or employees. The Partnerships have no pension, profit sharing, retirement, or similar benefit plans in effect as of December 31, 1996.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
At December 31, 1996, no investor is known by the General Partner to beneficially own more than 5% of the Units of TEP IXA, TEP IXB, TEP IXC, or TEP IXD.
(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 TEP IXA, TEP IXB, TEP IXC or TEP IXD.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) Transactions with Management and Others.
During 1996, management fees paid or accrued to IMI were: $61,560, $43,650, $43,160 and $23,822 for TEP IXA, TEP IXB, TEP IXC and TEP IXD, respectively. During 1996, administrative services performed on behalf of the Partnerships were reimbursed to FSI and its affiliates as follows: $87,395, $56,302, $96,914 and $39,802 for TEP IXA, TEP IXB, TEP IXC and TEP IXD, respectively.
During 1996, the unconsolidated special purpose entities (USPE's) paid or accrued (based on the Partnership's proportional share of ownership) management fees to IMI of : $572 for TEP IXC; administrative services paid to FSI were: $113 and $1,468 for TEP IXB and TEP IXC, respectively.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management
None.
(d) Transactions with Promoters
None.
PART IV
ITEM 14.
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 Partnership. Incorporated by reference to the Partnership's Registration Statement on Form S-1 (Reg. No. 33-657) which became effective with the Securities and Exchange Commission on January 7, 1986.
10. Management Agreement between Partnership and PLM Investment Management, Inc. Incorporated by reference to the Partnership's Registration Statement on Form S-1 (Reg. No. 33-657) which became effective with the Securities and Exchange Commission on January 7, 1986.
24. Powers of Attorney.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Registrant has no directors or officers. The General Partner has signed on behalf of the Registrant by duly authorized officers.
Date: March 14, 1997 PLM TRANSPORTATION EQUIPMENT PARTNERS IXA 1986 INCOME FUND PARTNERSHIP
By: PLM Financial Services, Inc. General Partner
By: /s/ Douglas P. Goodrich --------------------------- Douglas P. Goodrich President & Director
By: /s/ David J. Davis --------------------------- David J. Davis Vice President and Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following directors of the Registrant's General Partner on the dates indicated.
Name Capacity Date
*_____________________________ J. Alec Merriam Director-FSI March 14, 1997
*_____________________________ Robert L. Pagel Director-FSI March 14, 1997
* Stephen Peary, by signing his name hereto, does sign this document on behalf of the persons indicated above pursuant to powers-of-attorney duly executed by such persons and filed with the Securities and Exchange Commission.
/s/ Stephen Peary - ----------------------- Stephen Peary Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Registrant has no directors or officers. The General Partner has signed on behalf of the Registrant by duly authorized officers.
Date: March 14, 1997 PLM TRANSPORTATION EQUIPMENT PARTNERS IXB 1986 INCOME FUND PARTNERSHIP
By: PLM Financial Services, Inc. General Partner
By: /s/ Douglas P. Goodrich --------------------------- Douglas P. Goodrich President & Director
By: /s/ David J. Davis --------------------------- David J. Davis Vice President and Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following directors of the Registrant's General Partner on the dates indicated.
Name Capacity Date
*_____________________________ J. Alec Merriam Director-FSI March 14, 1997
*_____________________________ Robert L. Pagel Director-FSI March 14, 1997
* Stephen Peary, by signing his name hereto, does sign this document on behalf of the persons indicated above pursuant to powers-of-attorney duly executed by such persons and filed with the Securities and Exchange Commission.
/s/ Stephen Peary - ----------------------- Stephen Peary Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Registrant has no directors or officers. The General Partner has signed on behalf of the Registrant by duly authorized officers.
Date: March 14, 1997 PLM TRANSPORTATION EQUIPMENT PARTNERS IXC 1986 INCOME FUND PARTNERSHIP
By: PLM Financial Services, Inc. General Partner
By: /s/ Douglas P. Goodrich ----------------------------- Douglas P. Goodrich President & Director
By: /s/ David J. Davis ----------------------------- David J. Davis Vice President and Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following directors of the Registrant's General Partner on the dates indicated.
Name Capacity Date
*_____________________________ J. Alec Merriam Director-FSI March 14, 1997
*_____________________________ Robert L. Pagel Director-FSI March 14, 1997
* Stephen Peary, by signing his name hereto, does sign this document on behalf of the persons indicated above pursuant to powers-of-attorney duly executed by such persons and filed with the Securities and Exchange Commission.
/s/ Stephen Peary - ----------------------- Stephen Peary Attorney-in-Fact
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Registrant has no directors or officers. The General Partner has signed on behalf of the Registrant by duly authorized officers.
Date: March 14, 1997 PLM TRANSPORTATION EQUIPMENT PARTNERS IXD 1986 INCOME FUND PARTNERSHIP
By: PLM Financial Services, Inc. General Partner
By: /s/ Douglas P. Goodrich ---------------------------- Douglas P. Goodrich President & Director
By: /s/ David J. Davis ---------------------------- David J. Davis Vice President and Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following directors of the Registrant's General Partner on the dates indicated.
Name Capacity Date
*_____________________________ J. Alec Merriam Director-FSI March 14, 1997
*_____________________________ Robert L. Pagel Director-FSI March 14, 1997
* Stephen Peary, by signing his name hereto, does sign this document on behalf of the persons indicated above pursuant to powers-of-attorney duly executed by such persons and filed with the Securities and Exchange Commission.
/s/ Stephen Peary - ----------------------- Stephen Peary Attorney-in-Fact
PLM TRANSPORTATION EQUIPMENT PARTNERS IX 1986 INCOME FUND (A Limited Partnership)
(Item 14(a))
TEP IXA Page
Report of Independent Auditors 34
Balance sheets at December 31, 1996 and 1995 35
Statements of operations for the years ended December 31, 1996, 1995, and 1994 36
Statements of changes in partners' capital for the years ended December 31, 1996, 1995, and 1994 37
Statements of cash flows for the years ended December 31, 1996, 1995, and 1994 38
Notes to financial statements 39-43
TEP IXB
Report of Independent Auditors 44
Balance sheets at December 31, 1996 and 1995 45
Statements of income for the years ended December 31, 1996, 1995, and 1994 46
Statements of changes in partners' capital for the years ended December 31, 1996, 1995, and 1994 47
Statements of cash flows for the years ended December 31, 1996, 1995, and 1994 48
Notes to financial statements 49-53
PLM TRANSPORTATION EQUIPMENT PARTNERS IX 1986 INCOME FUND (A Limited Partnership)
(Item 14(a))
TEP IXC Page
Report a of Independent Auditors 54
Balance sheets at December 31, 1996 and 1995 55
Statements of income for the years ended December 31, 1996, 1995, and 1994 56
Statements of changes in partners' capital for the years ended December 31, 1996, 1995, and 1994 57
Statements of cash flows for the years ended December 31, 1996, 1995, and 1994 58
Notes to financial statements 59-64
TEP IXD
Report of Independent Auditors 65
Balance sheets at December 31, 1996 and 1995 66
Statements of operations for the years ended December 31, 1996, 1995, and 1994 67
Statements of changes in partners' capital for the years ended December 31, 1996, 1995, and 1994 68
Statements of cash flows for the years ended December 31, 1996, 1995, and 1994 69
Notes to financial statements 70-72
All other financial statement schedules have been omitted as the required information is not pertinent or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto.
REPORT OF INDEPENDENT AUDITORS
The Partners PLM Transportation Equipment Partners IXA 1986 Income Fund:
We have audited the financial statements of PLM Transportation Equipment Partners IXA 1986 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 has entered its liquidation phase and 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 also described in note 1.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PLM Transportation Equipment Partners IXA 1986 Income Fund as of December 31, 1996 and 1995 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles.
/S/ KPMG PEAT MARWICK LLP - ----------------------------
SAN FRANCISCO, CALIFORNIA March 14, 1997
PLM TRANSPORTATION EQUIPMENT PARTNERS IXA 1986 INCOME FUND (A Limited Partnership)
BALANCE SHEETS December 31,
ASSETS
See accompanying notes to financial statements.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXA 1986 INCOME FUND (A Limited Partnership)
STATEMENTS OF OPERATIONS For the years ended December 31,
See accompanying notes to financial statements.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXA 1986 INCOME FUND (A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the years ended December 31, 1996, 1995, and 1994
See accompanying notes to financial statements.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXA 1986 INCOME FUND (A Limited Partnership)
STATEMENTS OF CASH FLOWS for the years ended December 31,
See accompanying notes to financial statements.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXA 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996
1. Basis of presentation
Organization
PLM Transportation Equipment Partners IXA 1986 Income Fund, a California limited partnership (the Partnership) was formed on September 20, 1985. The Partnership engages in the business of owning and leasing transportation equipment. The Partnership commenced significant operations in June 1986. 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 a monthly management fee from the Partnership for managing the equipment (see Note 2). FSI, in conjunction with its subsidiaries, sells transportation equipment to investor programs and third parties, manages pools of transportation equipment under agreements with the investor programs, and is a General Partner of other Limited Partnerships.
The Partnership has entered its liquidation phase and 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.
Accounting for Leases
The Partnership's leasing operations generally consist of operating leases. Under the operating lease method of accounting, the leased asset is recorded at cost and depreciated over its estimated useful life. Rental payments are recorded as revenue over the lease term. Lease origination costs are capitalized and amortized over the term of the lease.
Depreciation
Depreciation is computed on the double declining balance method based upon estimated useful lives of 15 years for rail equipment, 12 years for trailers, marine containers and aircraft 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 IXA 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996
1. Basis of presentation (continued)
Transportation Equipment
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" (SFAS 121). This standard is effective for years beginning after December 15, 1995. In accordance with FASB 121, the Partnership reviews the carrying value of its equipment 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 years ended December 31, 1996 and 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.
Net Income (Loss) and Distribution 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 (24,285 for 1996, 1995, and 1994).
Cash distributions are recorded when paid. Cash distributions to investors in excess of net income are considered to represent a return of capital. Cash distributions to Limited Partners of $1,343,851, $0, and $494,570, in 1996, 1995, and 1994, respectively, were deemed to be a return of capital.
Cash and Cash Equivalents
The Partnership considers highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less as cash equivalents.
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 a monthly management fee 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 $5,059 were payable to IMI as of December 31, 1996 and 1995.
The Partnership reimbursed FSI and its affiliates $87,395, $122,635, and $108,298 for administrative and other services performed on behalf of the Partnership in 1996, 1995, and 1994, respectively.
As of December 31, 1996, all of the Partnership's trailer equipment has been transferred into rental facilities operated by an affiliate of the General Partner. Revenues are earned by billing the rental facilities' customers monthly or quarterly under short-term rental agreements and are distributed as collected to the owners of the related equipment. Direct expenses associated with the equipment and an allocation of indirect expense of rental facility operations are billed to the Partnership.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXA 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996
2. General Partner and Transactions with Affiliates (continued)
At December 31, 1996, $5,059 was due to FSI and its affiliates ($2,941 was due from FSI and its affiliates at December 31, 1995).
3. Equipment
The components of equipment at December 31, 1996 and 1995 are as follows:
Revenues are earned by placing the equipment under operating leases which are billed monthly or quarterly. Rents for all equipment are based on a fixed operating lease amount with the exception of marine containers and trailers in the rental facilities. The Partnership's marine containers are leased to the operator of utilization-type pools which includes 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.
With the exception of one sidelift with a carrying value of $28,433, all equipment was either on lease or operating in PLM-affiliated short-term rental facilities as of December 31, 1996. All equipment was either operating in rental facilities or on lease as of December 31, 1995. During 1996, the Partnership sold or disposed of two trailers, 10 railcars, and 18 marine containers. During 1995, the Partnership sold or disposed of one trailer and 10 marine containers. Additionally, the Partnership entered into a sales-type lease related to a commuter aircraft with a carrying value of $505,450 for a sales price equal to the present value of the future lease payments ($1,090,000) less a $50,000 reserve for future costs to sell. Gross lease payments of $234,000 were received over a one-year period, commencing in June 1995, with an additional balloon payment of $919,012 due at the end of the lease term. The total net book value for the disposed or sold equipment was $534,446 with a total sales price of $1,090,000.
All leases are being accounted for as operating leases with utilization-based rentals. Contingent rentals based upon utilization amounted to $112,994 in 1996, $118,625 in 1995, and $130,722 in 1994.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXA 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996
3. Equipment (continued)
The lessees accounting for 10% or more of the total revenues during 1996, 1995 and 1994 was Transamerica Leasing (27% in 1996, 22% in 1995, and 19% in 1994).
The Partnership owns certain equipment which is leased and operated internationally. 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.
The Partnership leases its aircraft, railcars and trailers to lessees domiciled in two geographic regions: Australia and United States. 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, 1996, 1995, and 1994:
The following table sets forth identifiable net income (loss) information by region:
The net book value of these assets at December 31, 1996, 1995, and 1994 are as follows:
PLM TRANSPORTATION EQUIPMENT PARTNERS IXA 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996
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, 1996, there were temporary differences of approximately $1.3 million 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, and equipment reserves.
5. Investment in Sales-type Lease
On January 31, 1996, the lessee under the sales-type lease of the Metro III commuter aircraft exercised its option to buy the aircraft for approximately $1.0 million.
REPORT OF INDEPENDENT AUDITORS
The Partners PLM Transportation Equipment Partners IXB 1986 Income Fund:
We have audited the financial statements of PLM Transportation Equipment Partners IXB 1986 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 has entered its liquidation phase and 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 also described in note 1.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PLM Transportation Equipment Partners IXB 1986 Income Fund as of December 31, 1996 and 1995 and the results of its income and its cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles.
/S/ KPMG PEAT MARWICK - ----------------------------
SAN FRANCISCO, CALIFORNIA March 14, 1997
PLM TRANSPORTATION EQUIPMENT PARTNERS IXB 1986 INCOME FUND (A Limited Partnership)
BALANCE SHEETS December 31,
ASSETS
See accompanying notes to financial statements.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXB 1986 INCOME FUND (A Limited Partnership)
STATEMENTS OF INCOME For the years ended December 31,
See accompanying notes to financial statements.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXB 1986 INCOME FUND (A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the years ended December 31, 1996, 1995, and 1994
See accompanying notes to financial statements.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXB 1986 INCOME FUND (A Limited Partnership)
STATEMENTS OF CASH FLOWS for the years ended December 31,
See accompanying notes to financial statements.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXB 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996
1. Basis of Presentation
Organization
PLM Transportation Equipment Partners IXB 1986 Income Fund, a California limited partnership (the Partnership) was formed on September 20, 1985. The Partnership engages in the business of owning and leasing transportation equipment. The Partnership commenced significant operations in October, 1986. 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 a monthly management fee from the Partnership for managing the equipment (see Note 2). FSI, in conjunction with its subsidiaries, sells transportation equipment to investors programs and third parties, manages pools of transportation equipment under agreements with the investor programs, and is a General Partner of other Limited Partnerships.
The Partnership has entered its liquidation phase and 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.
Accounting for Leases
The Partnership's leasing operations generally consist of operating leases. Under the operating lease method of accounting, the leased asset is recorded at cost and depreciated over its estimated useful life. Rental payments are recorded as revenue over the lease term. Lease origination costs are capitalized and amortized over the term of the lease.
Depreciation
Depreciation is computed on the double declining balance method based upon estimated useful lives of 15 years for rail equipment, 12 years for trailers, marine containers, and aircraft 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 IXB 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996
1. Basis of Presentation (continued)
Transportation Equipment
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" (SFAS 121). This standard is effective for years beginning after December 15, 1995. In accordance with SFAS 121, the General Partner reviews the carrying value of its equipment portfolio at least annually in relation to expected future market conditions for the purpose of assessing recoverability of the recorded amounts. If projected future lease revenue plus residual values are less than the carrying value of the equipment, a loss on revaluation is recorded. No adjustments to reflect impairment of individual equipment carrying values were required for the years ended December 31, 1996 and 1995.
Investment in Unconsolidated Special Purpose Entity
The Partnership had an interest in a special purpose entity which owned transportation equipment. This interest was accounted for using the equity method.
The Partnership's investment in the unconsolidated special purpose entity included acquisition and lease negotiation fees paid by the Partnership to TEC. The Partnership's equity interest in net income of the unconsolidated special purpose entity is reflected net of management fees paid or payable to IMI and the amortization of acquisition and lease negotiation fees paid to TEC. The equipment owned by this entity was sold in the third quarter of 1996.
Repairs and Maintenance
Maintenance costs are usually the obligation of the lessee. If they are not covered by the lessee they are charged against operations as incurred.
Net Income (Loss) and Distributions per Limited Partnership Unit
Net income (loss) per Limited Partnership Unit is computed based on the number of Limited Partnership Units outstanding during the period (17,460 for 1996, 1995, and 1994).
Cash distributions are recorded when paid. Cash distributions to investors in excess of net income are considered to represent a return of capital. Cash distributions to Limited Partners of $374,221, $585,258, and $576,532 in 1996, 1995, and 1994, respectively, were deemed to be a return of capital.
Cash and Cash Equivalents
The Partnership considers highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less as cash equivalents.
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 a monthly management fee attributable to either owned equipment or interests in equipment owned by the USPE's equal to the greater of 10% of the Partnership's "operating cash flow" or 1/12 of 1/2% of the Partnership's "gross proceeds" as defined in the Partnership Agreement. Partnership management fees of $3,637 were payable to IMI as of December 31, 1996 and 1995.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXB 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996
2. General Partner and Transactions with Affiliates (continued)
The Partnership reimbursed FSI and its affiliates $56,302, $96,118, and $87,839 for administrative and other services performed on behalf of the Partnership in 1996, 1995, and 1994, respectively. The Partnership's proportional share of USPE's administrative and other services was $113 during 1996.
As of December 31, 1996, all of the Partnership's trailer equipment has been transferred into rental facilities operated by an affiliate of the General Partner. Revenues are earned by billing the rental facilities' customers monthly or quarterly under short-term rental agreements and are distributed as collected to the owners of the related equipment. Direct expenses associated with the equipment and an allocation of indirect expenses of rental facility operations are billed to the Partnership.
At December 31, 1996 and 1995, $3,637 was due to FSI and affiliates.
3. Equipment
The components of owned equipment at December 31, 1996 and 1995 are as follows:
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 trailers in the rental facilities. 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.
With the exception of one sidelift with a carrying value of $46,438, all equipment was either on lease or operating in PLM-affiliated short-term rental facilities as of December 31, 1996. With the exception of one trailer and one sidelift with a carrying value of $79,024, all equipment was either on lease or operating in PLM-affiliated short-term rental facilities as of December 31, 1995.
During 1996, the Partnership sold or disposed of nine trailers, four marine containers, and 14 railcars with an aggregate net book value of $171,316 for proceeds of $443,499. During 1995, the Partnership sold or disposed of 22 trailers, 4 marine containers with an aggregate book value of $152,421 for proceeds of $265,627.
The leases are being accounted for as operating leases with utilization-based rentals. Contingent rentals based upon utilization amounted to $26,960 in 1996, $34,915 in 1995, and $39,555 in 1994.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXB 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996
3. Equipment (continued)
The lessees accounting for 10% or more of the total revenues during 1996, 1995 and 1994 were Skywest Airlines, Inc. (36% in 1995 and 24% in 1994), Van Wyk, Inc. (10% in 1994), M&H Food Cos. (13% in 1994), and Transamerica Leasing (11% in 1996).
The Partnership owns certain equipment which is leased and operated internationally 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.
The Partnership leases its aircraft, railcars and trailers to lessees domiciled in the United States. The marine containers are leased to lessees in different regions who operate the marine containers worldwide.
4. Investment in Unconsolidated Special Purpose Entity (continued)
Prior to 1996, the Partnership accounted for operating activities associated with joint ownership of rental equipment as undivided interests, including its proportionate share of each asset with similar wholly-owned assets in its financial statements. Under generally accepted accounting principles, the effects of such activities, if material, should be reported using the equity method of accounting. Therefore, effective January 1, 1996, the Partnership adopted the equity method to account for its investment in such jointly-held assets.
The principal differences between the previous accounting method and the equity method relate to the presentation of activities relating to these assets in the statement of operations. Whereas, under equity accounting the Partnership's proportionate share is presented as a single net amount, "equity in net income (loss) of unconsolidated special purpose entities", under the previous method, the Partnership's statement of operations reflected its proportionate share of each individual item of revenue and expense. Accordingly, the effect of adopting the equity method of accounting has no cumulative effect on previously reported partner's capital or on the Partnership's net income (loss) for the period of adoption. Because the effects on previously issued financial statements of applying the equity method of accounting to investments in jointly-owned assets are not considered to be material to such financial statements taken as a whole, previously issued financial statements have not been restated. However, certain items have been reclassified in the previously issued balance sheet to conform to the current period presentation.
The following summarizes the financial information for the special purpose entities and the Partnership's interest therein as of and for the year ended December 31, 1996:
Net Total USPE Interest of Partnership ------------------------------
Net Investments $ -- $ -- Revenues -- -- Net Income 501,852 250,928
In 1996, the entity in which the Partnership had a 50% interest sold a commuter aircraft. The Partnership received liquidating distributions from the sale during the third quarter of 1996.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXB 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996
5. Income Taxes
The Partnership is not subject to income taxes as any income or loss is included in the tax returns of the individual Partners. Accordingly, no provision for income taxes has been made in the accounts of the Partnership.
As of December 31, 1996, there were temporary differences of approximately $898,636 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, and equipment reserves.
REPORT OF INDEPENDENT AUDITORS
The Partners PLM Transportation Equipment Partners IXC 1986 Income Fund:
We have audited the financial statements of PLM Transportation Equipment Partners IXC 1986 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 has entered its liquidation phase and 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 also described in note 1.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PLM Transportation Equipment Partners IXC 1986 Income Fund as of December 31, 1996 and 1995 and the results of its income and its cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles.
/S/ KPMG PEAT MARWICK LLP - -----------------------------------
SAN FRANCISCO, CALIFORNIA March 14, 1997
PLM TRANSPORTATION EQUIPMENT PARTNERS IXC 1986 INCOME FUND (A Limited Partnership)
BALANCE SHEETS December 31,
ASSETS
See accompanying notes to financial statements.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXC 1986 INCOME FUND (A Limited Partnership)
STATEMENTS OF INCOME For the years ended December 31,
See accompanying notes to financial statements.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXC 1986 INCOME FUND (A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the years ended December 31, 1996, 1995, and 1994
See accompanying notes to financial statements.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXC 1986 INCOME FUND (A Limited Partnership)
STATEMENTS OF CASH FLOWS for the years ended December 31,
See accompanying notes to financial statements.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXC 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996
1. Basis of Presentation
Organization
PLM Transportation Equipment Partners IXC 1986 Income Fund, a California limited partnership (the Partnership), was formed on September 20, 1985. The Partnership engages in the business of owning and leasing transportation equipment. The Partnership commenced significant operations in December 1986. 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 a monthly management fee from the Partnership for managing the equipment (see Note 2). FSI, in conjunction with its subsidiaries, sells transportation equipment to investor programs and third parties, manages pools of transportation equipment under agreements with the investor programs, and is a General Partner of other Limited Partnerships.
The Partnership has entered its liquidation phase and 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.
Accounting for Leases
The Partnership's leasing operations generally consist of operating leases. Under the operating lease method of accounting, the leased asset is recorded at cost and depreciated over its estimated useful life. Rental payments are recorded as revenue over the lease term. Lease origination costs are capitalized and amortized over the term of the lease.
Depreciation
Depreciation is computed on the double declining balance method based upon estimated useful lives of 15 years for rail equipment, 12 years for trailers, marine containers, and aircraft, 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 IXC 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996
1. Basis of Presentation (continued)
Transportation Equipment
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" (SFAS 121). This standard is effective for years beginning after December 15, 1995. In accordance with SFAS 121, the General Partner reviews the carrying value of its equipment portfolio at least annually in relation to expected future market conditions for the purpose of assessing recoverability of the recorded amounts. If projected future lease revenue plus residual values are less than the carrying value of the equipment, a loss on revaluation is recorded. No adjustments to reflect impairment of individual equipment carrying values were required for the years ended December 31, 1996 and 1995.
Investment in Unconsolidated Special Purpose Entity
The Partnership had an interest in a special purpose entity which owned transportation equipment. This interest was accounted for using the equity method.
The Partnership's investment in unconsolidated special purpose entity included acquisition and lease negotiation fees paid by the Partnership to TEC. The Partnership's equity interest in net income of unconsolidated special purpose entity is reflected net of management fees paid or payable to IMI and the amortization of acquisition and lease negotiation fees paid to TEC. The equipment owned by this entity was sold in the second quarter of 1996.
Repairs and Maintenance
Maintenance costs are usually the obligation of the lessee. If they are not covered by the lessee they are charged against operations as incurred.
Net Income (Loss) and Distributions per Limited Partnership Unit
Net income (loss) per Limited Partnership Unit is computed based on the number of Limited Partnership Units outstanding during the period (16,914 for 1996, 1995, and 1994).
Cash distributions are recorded when paid. Cash distributions to investors in excess of net income are considered to represent a return of capital. Cash distributions to Limited Partners of $503,698, $640,950, and $231,367 in 1996, 1995, and 1994, respectively, were deemed to be a return of capital.
Cash and Cash Equivalents
The Partnership considers highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less as cash equivalents for the purposes of this presentation. Lessee security deposits held by the Partnership are considered restricted cash.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXC 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996
2. General Partner and Transactions with Affiliates
An officer of FSI contributed $100 of the Partnership's initial net capital. Under the Equipment Management Agreement, IMI receives a monthly management fee attributable to either owned equipment or interests in equipment owned by the USPE's equal to the greater of 10% of the Partnership's "operating cash flow" or 1/12 of 1/2% of the Partnership's "gross proceeds" as defined in the Partnership Agreement. Partnership management fees of $3,523 were payable to IMI as of December 31, 1996 and 1995.
The Partnership reimbursed FSI and its affiliates $96,914, $163,169, and $183,308 for administrative and other services performed on behalf of the Partnership in 1996, 1995, and 1994, respectively. The Partnership's proportional share of USPE's administrative and other services was $1,468 during 1996.
As of December 31, 1996, all of the Partnership's trailer equipment has been transferred into rental facilities operated by an affiliate of the General Partner. Revenues are earned by billing the rental facilities' customers monthly or quarterly under short-term rental agreements and are distributed as collected to the owners of the related equipment. Direct expenses associated with the equipment and an allocation of indirect expenses of the rental facility operations are billed to the Partnership.
At December 31, 1996, $3,523 was due to FSI and its affiliates ($3,523 was due from FSI and its affiliates at December 31, 1995).
3. Equipment
The components of owned equipment at December 31, 1996 and 1995 are as follows:
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 trailers in the rental facilities. 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 equipment was either on lease or operating in PLM-affiliated short-term rental facilities as of December 31, 1996 and 1995. During 1996, the Partnership sold or disposed of 24 trailers, five railcars, and one marine containers with aggregate net book value of $130,705 for proceeds of $245,647. During 1995, the Partnership sold or disposed of four trailers, one marine container, and five twin stack railcars with aggregate net book value of $297,617 for proceeds of $527,216
All leases are being accounted for as operating leases with utilization-based rentals. Contingent rentals based upon utilization amounted to $5,579 in 1996, $11,507 in 1995, and $9,763 in 1994.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXC 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996
3. Equipment (continued)
There were no lessees who accounted for 10% or more of total revenues during 1996, 1995, and 1994.
The Partnership owns certain equipment which is leased and operated internationally. 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.
The Partnership leases its aircraft, railcars and trailers to lessees domiciled in two geographic region: Australia and United States. 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 owned and partially owned equipment grouped by domicile of the lessee as of and for the years ended December 31, 1996, 1995, and 1994:
The following table sets forth identifiable income (loss) information by region:
PLM TRANSPORTATION EQUIPMENT PARTNERS IXC 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996
3. Equipment (continued)
The net book value of these assets at December 31, 1996, 1995, and 1994 are as follows:
4. Investment in Unconsolidated Special Purpose Entity
Prior to 1996, the Partnership accounted for operating activities associated with joint ownership of rental equipment as undivided interests, including its proportionate share of each asset with similar wholly-owned assets in its financial statements. Under generally accepted accounting principles, the effects of such activities, if material, should be reported using the equity method of accounting. Therefore, effective January 1, 1996, the Partnership adopted the equity method to account for its investment in such jointly-held assets.
The principal differences between the previous accounting method and the equity method relate to the presentation of activities relating to these assets in the statement of operations. Whereas, under equity accounting the Partnership's proportionate share is presented as a single net amount, "equity in net income (loss) of unconsolidated special purpose entities", under the previous method, the Partnership's statement of operations reflected its proportionate share of each individual item of revenue and expense. Accordingly, the effect of adopting the equity method of accounting has no cumulative effect on previously reported partner's capital or on the Partnership's net income (loss) for the period of adoption. Because the effects on previously issued financial statements of applying the equity method of accounting to investments in jointly-owned assets are not considered to be material to such financial statements taken as a whole, previously issued financial statements have not been restated. However, certain items have been reclassified in the previously issued balance sheet to conform to the current period presentation.
The following summarizes the financial information for the special purpose entities and the Partnership's interest therein as of and for the year ended December 31, 1996:
Net Total USPE Interest of Partnership ------------------------------
Net Investments $ -- $ -- Revenues 38,000 11,400 Net Income 370,827 111,247
PLM TRANSPORTATION EQUIPMENT PARTNERS IXC 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996
4. Investment in Unconsolidated Special Purpose Entity (continued)
In 1996, the entity in which the Partnership had a 30% interest sold a commuter aircraft. The Partnership received liquidating distributions from the sale during the second quarter of 1996.
5. Income Taxes
The Partnership is not subject to income taxes as any income or loss is included in the tax returns of the individual Partners. Accordingly, no provision for income taxes has been made in the accounts of the Partnership.
As of December 31, 1996, there were temporary differences of approximately $687,256 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, and equipment reserves.
REPORT OF INDEPENDENT AUDITORS
The Partners PLM Transportation Equipment Partners IXD 1986 Income Fund:
We have audited the financial statements of PLM Transportation Equipment Partners IXD 1986 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 has entered its liquidation phase and 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 also described in note 1.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PLM Transportation Equipment Partners IXD 1986 Income Fund as of December 31, 1996 and 1995 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles.
/S/ KPMG PEAT MARWICK LLP - ------------------------------------
SAN FRANCISCO, CALIFORNIA March 14, 1997
PLM TRANSPORTATION EQUIPMENT PARTNERS IXD 1986 INCOME FUND (A Limited Partnership)
BALANCE SHEETS December 31,
ASSETS
See accompanying notes to financial statements.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXD 1986 INCOME FUND (A Limited Partnership)
STATEMENTS OF OPERATIONS For the years ended December 31,
See accompanying notes to financial statements.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXD 1986 INCOME FUND (A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the years ended December 31, 1996, 1995, and 1994
See accompanying notes to financial statements.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXD 1986 INCOME FUND (A Limited Partnership)
STATEMENTS OF CASH FLOWS for the years ended December 31,
See accompanying notes to financial statements.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXD 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996
1. Basis of Presentation
Organization
PLM Transportation Equipment Partners IXD 1986 Income Fund, a California limited partnership (the Partnership) was formed on September 20, 1985. The Partnership is engaged in the business of owning and leasing transportation equipment. The Partnership commenced significant operations in March 1987. 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 a monthly management fee payable monthly from the Partnership for managing the equipment (see Note 2). FSI, in conjunction with its subsidiaries, sells transportation equipment to investor programs, manages pools of transportation equipment under agreements with these programs, and is a General Partner of other Limited Partnerships.
The Partnership has entered its liquidation phase and 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.
Accounting for Leases
The Partnership's leasing operations generally consist of operating leases. Under the operating lease method of accounting, the leased asset is recorded at cost and depreciated over its estimated useful life. Rental payments are recorded as revenue over the lease term. Lease origination costs are capitalized and amortized over the term of the lease.
Depreciation
Depreciation is computed on the double declining balance method based upon estimated useful lives of 12 years for trailers, marine containers, and aircraft, 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 IXD 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996
1. Basis of Presentation (continued)
Transportation Equipment
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" (SFAS 121). This standard is effective for years beginning after December 15, 1995. In accordance with SFAS 121, the General Partner reviews the carrying value of its equipment portfolio at least annually in relation to expected future market conditions for the purpose of assessing recoverability of the recorded amounts. If projected future lease revenue plus residual values are less than the carrying value of the equipment, a loss on revaluation is recorded. No adjustments to reflect impairment of individual equipment carrying values were required for the years ended December 31, 1996 and 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.
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 (9,529 for 1996, 1995 and 1994).
Cash distributions are recorded when paid. Cash distributions to investors in excess of net income are considered to represent a return of capital. Cash distributions to Limited Partners of $281,245, $809,500, and $202,915, in 1996, 1995 and 1994, respectively, were deemed to be a return of capital.
Cash and Cash Equivalents
The Partnership considers highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less as cash equivalents for the purposes of this presentation.
An officer of FSI contributed $100 of the Partnership's initial net capital. Under the Equipment Management Agreement, IMI receives a monthly management fee 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 $1,985 were payable to IMI as of December 31, 1996 and 1995.
The Partnership reimbursed FSI and its affiliates $39,802 for administrative and other services performed on behalf of the Partnership in 1996 ($68,871 in 1995 and $83,259 in 1994).
As of December 31, 1996, all of the Partnership's trailer equipment has been transferred into rental facilities operated by an affiliate of the General Partner. Revenues are earned by billing the rental facilities' customers monthly or quarterly under short-term rental agreements and are distributed as collected to the owners of the related equipment. Direct expenses associated with the equipment and an allocation of indirect expenses of rental facility operations are billed to the Partnership.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXD 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996
2. General Partner and Transactions with Affiliates
At December 31, 1996, $1,985 was due to FSI and its affiliates ($7,639 at December 31, 1995).
3. Equipment
The components of equipment at December 31, 1996 and 1995 are as follows:
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. 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 equipment was either on lease or operating in PLM-affiliated short-term rental facilities as of December 31, 1996 and 1995. During 1996, the Partnership sold or disposed of 39 marine containers and nine trailers with aggregate net book value of $37,577 for proceeds of $82,456. During 1995, the Partnership sold or disposed of 45 marine containers and 30 trailers with a net book value of $288,697 for the proceeds of $371,932.
The leases are being accounted for as operating leases with utilization-based rentals. Contingent rentals based upon utilization amounted to $50,335 in 1996, $78,612 in 1995; and $88,524 in 1994.
The lessees accounting for 10% or more of the total revenues during 1996, 1995, and 1994 were Transamerica Leasing (33% in 1996, 16% in 1995, and 16% in 1994).
The Partnership leases its trailers to lessees domiciled in the United States. The marine containers are leased to lessees in different regions who operate the marine containers worldwide
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, 1996, there were temporary differences of approximately $418,850 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 IX
1986 INCOME FUND
INDEX OF EXHIBITS
Exhibit Page
4. Limited Partnership Agreement of Registrant. *
10. Management Agreement between each Registrant and * PLM Investment Management, Inc.
25. Powers of Attorney 74-76
- -------- * Incorporated by reference. See page 27 of this report.