ITEM 1. BUSINESS
(A) Background
In 1979, PLM Investment Management, Inc. (IMI or Manager) (formerly PLM Railcar Management, Inc.), a wholly owned subsidiary of PLM Financial Services, Inc. (FSI), sponsored the public offering of a management program entitled RMI Covered Hopper Railcar Management Program 79-1 (variously, the Registrant or the Program). The Program was registered with the Securities and Exchange Commission under the Securities Act of 1933. The Program offered to investors, meeting certain suitability standards, the opportunity to purchase from PLM Transportation Equipment Corporation (TEC) (formerly National Equipco, Inc.), an affiliate of FSI, one or more 100-ton triple covered hopper, 4,700/4,750 cubic foot, railroad cars with center pockets, gravity discharge, and trough hatches (car or cars).
The purchase price for one unit, consisting of one car plus a Management Agreement (Unit), was the sum of (i) the manufacturer's invoice price of a car, (ii) a commencement fee, equal to 10% prior to August 15, 1980, and 13% thereafter, of the manufacturer's invoice price and (iii) initial storage and transit costs.
The Program is organized to provide investors with an efficient and convenient method of acquiring, leasing, maintaining and managing individually owned railroad cars. With certain exceptions, operating revenues and expenses from all cars managed under the Program are pooled. Net income, or net loss, is allocated to each participant and excess cash flow is distributed to each participant on a pro-rata basis.
IMI manages 9 private railcar management programs and two public railcar programs. Each of the programs involves a distinct group of railcars available for a specified time and managed separately, with all funds from each management program administered separately. The railcars owned by investors in each pool are subject to separate leases.
(B) Sale and Availability of Cars
Program investors purchased 777 cars for a price per car ranging from $48,000 to $50,000, which included commencement fees. The Program closed April 30, 1981. Subsequent to the close of the Program, 7 cars were added to the fleet, 315 cars have been sold or destroyed. As of December 31, 1996, 469 cars were in the Program as of December 31, 1996, all of which were on lease.
(C) Management
The investors were offered the option of entering into a 10-year management agreement (Management Agreement) with IMI, pursuant to which IMI has acted as the investors' agent for the purpose of managing and leasing the investors' car or cars. Pursuant to the original Management Agreement and extensions thereof, IMI receives a management fee on a per car basis at a fixed rate each month, plus an incentive management fee equal to 15% of "Net Earnings" (as defined in the Management Agreement) over $750 per car per quarter. The weighted average monthly rental rate per car in 1996 was $431.
All 469 cars in the Program are operating under fixed payment, full service lease agreements. Additional mileage revenue above the fixed lease payments may also be earned for certain cars.
In most circumstances, the Manager endeavors to obtain the longest lease term practicable. At December 31, 1996, the Program had leases with the following lessees which accounted for greater than 10% of the total number of cars in the Program:
Under most of the Program's leases, the lessor is obligated to pay property taxes and to maintain the cars in good running condition. When cars need repair, rent will generally abate during the period they are out of service. Lessees are usually obligated to pay all other operating expenses of the cars. Lessees are normally responsible for the loss, damage or destruction of the cars, except in the case of negligence, recklessness or willful misconduct on the part of the Manager. Regulatory changes may occasionally require cars to be altered or retrofitted. Typically, such alterations or retrofits are the responsibility of the investor. The leases usually provide for an increase in the monthly rental rate calculated as a percentage of the cost of any such alterations. In such cases, rent will abate for the period of time while the alterations are being made.
Monthly management fees of $38 per car and quarterly incentive management fees are charged directly to the individual investors pursuant to five-year extensions made to the original Management Agreements which had original terms of ten years. Prior to the five-year extensions, management fees were being charged at the rate of $55 per car.
(D) Competition
Full service lease rental rates are highly competitive and are not subject to regulation by the Interstate Commerce Commission. Lease rental rates are principally affected by the demand for and the supply of cars between different owner-lessors. Secondarily, lease rental rates are influenced by a number of factors, including the cost of new and used cars, interest rates, maintenance and operating costs, property taxes, other direct operating costs and the level of railroad mileage allowances.
The major leasing competitors of the Program who are also involved in leasing privately-owned covered hopper cars are: ACF Industries, Inc. (Shippers Car Line Division), First Union Rail Services, Inc., General American Transportation Corp., General Electric Railcar Services Corporation, and Union Tank Car Co.
(E) Demand
Covered Hopper (Grain) Cars
For the year ended December 31, 1996, grain car loadings were down 9.9% compared to the same period for 1995. Even with the greatly reduced loadings, the on-lease rate during 1996 for the Program's grain cars remained at 100%. Industry-wide, the covered hopper is one car type that has increased in number over the last ten years, going from a total of 299,172 cars in 1985 to 325,882 cars in 1995. It is possible that another poor crop year, combined with more available cars, could place downward pressure on grain car rental rates during 1997.
ITEM 2.
ITEM 2. PROPERTIES
At December 31, 1996, the Program had no properties except for the 469 cars being managed under the Program, as described in Item 1(c). The Program maintains its principal office at One Market, Steuart Street Tower, Suite 800, San Francisco, California 94105-1301. All office facilities are provided by FSI without reimbursement by the Program.
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 Program's owners during the last quarter of its fiscal year ended December 31, 1996.
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PART II
ITEM 5.
ITEM 5. MARKET FOR THE PROGRAM'S EQUITY AND RELATED EQUITY MATTERS
None.
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ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Table 1, below, lists selected financial data for the five years ended December 31, 1996, prepared on a cash basis, for the Program, as a whole and on a per car basis, computed on a weighted average available car per day basis:
TABLE 1 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
The Program's operating funds are committed to payment of operating expenses, management fees, and making cash distributions to the car owners when available. The Program intends to finance these activities with funds generated from operations. The Program has experienced no known demands or commitments that might adversely affect the liquidity of the Program.
Funds from operations are generated by lease payments and interest income on invested cash.
Results of Operations
The statements of revenues collected and expenses paid and other changes in cash of the Program are presented on the cash basis of accounting used for reporting to investors in the Program in accordance with the Management Agreement with IMI. Under the cash basis, revenues are recognized when received, rather than when earned, and expenses are recognized when paid, rather than when the obligation is incurred.
Comparison of the Program's Revenues Collected, Expenses Paid and Other Changes in Cash for the Years Ended December 31, 1996 and 1995
Revenues collected:
1. Lease receipts decreased to $2,458,027 for the year ended December 31, 1996, from $2,475,106 for the comparable period in 1995. The decrease is primarily due to the disposition of 31 cars in 1996 and the timing of rental receipts between the comparable periods.
2. Interest and other income decreased to $80,182 for the year ended December 31, 1996, from $84,829 for the comparable period in 1995. The decrease is primarily due to lower interest income resulting from lower cash balances and a lower rate of interest paid.
Expenses paid:
1. Repairs and maintenance expense decreased to $295,383 for the year ended December 31, 1996, from $363,776 for the comparable period in 1995. The decrease is primarily due to the disposition of 31 cars and the timing of payments for these expenses during the comparable periods.
2. Insurance expense increased to $26,065 for the year ended December 31, 1996, from $23,890 for the comparable period in 1995. The increase is primarily due to the timing of payments for the annual premium for liability and physical damage insurance.
3. Property taxes decreased to $30,894 for the year ended December 31, 1996, from $53,685 for the comparable period in 1995. The decrease is due to the disposition of 31 cars in 1996 and the timing of receipt of invoices from various states, and to the timing of payments for these expenses during the comparable periods, as the tax rates remained constant.
4. Accounting and legal fees increased to $8,849 for the year ended December 31, 1996, from $6,597 for the comparable period in 1995. The increase is due to the timing of payments for these expenses during the comparable periods, as the service level remains the same.
5. Storage, repositioning and other expenses increased to $13,083 for the year ended 1996, from $7,979 for the comparable period in 1995. The increase is primarily due to the timing of payments of these expenses during comparable periods.
Other changes in cash:
1. Prepaid mileage, reimbursable repairs and other expenses are composed primarily of receipts of mileage credits from railroads which are due to lessees, net of reimbursable repairs from lessees. The funds decreased by $275,672 during the year ended December 31, 1996, as compared to an increase of $119,933 for the comparable period in 1995. The decrease between comparable periods is primarily due to the timing of net receipts and repayments of these funds by the Program.
2. Management fees increased to $271,533 for the year ended December 31, 1996, from $262,458 for the comparable period in 1995. This increase was due to an incentive management fee of $54,380 paid to IMI in 1996 compared to an incentive management fee of $37,080 paid in 1995, offset by the decrease in the number of cars.
As a result of the foregoing and other factors, the Program distributed $1,809,722 to investors for the year ended December 31, 1996, a 5% increase from the $1,731,469 paid in 1995.
Comparison of the Program's Revenues Collected, Expenses Paid and Other Changes in Cash for the Years Ended December 31, 1995 and 1994
Revenues collected:
1. Lease receipts increased to $2,475,106 for the year ended December 31, 1995, from $2,378,466 for the comparable period in 1994. The increase is primarily due to the timing of rental receipts between the comparable periods and higher average lease rates in 1995 compared to 1994.
2. Interest and other income increased to $84,829 for the year ended December 31, 1995, from $63,161 for the comparable period in 1994. The increase is primarily due to an increase in interest income resulting from higher cash balances and a higher rate of interest paid. The increase was offset by $28,000 in business interruption insurance claims received in 1994. A similar claim was not received during 1995.
Expenses paid:
1. Repairs and maintenance expense increased to $363,776 for the year ended December 31, 1995, from $339,962 for the comparable period in 1994. The increase is primarily due to timing of payments for these expenses during the comparable periods.
2. Insurance expense decreased to $23,890 for the year ended December 31, 1995, from $49,969 for the comparable period in 1994. The decrease is primarily due to the timing of payments for the annual premium for liability and physical damage insurance and the non-renewal of business interruption insurance.
3. Property taxes decreased to $53,685 for the year ended December 31, 1995, from $75,606 for the comparable period in 1994. The decrease is due to timing of receipt of invoices from various states, and to the timing of payments for these expenses during the comparable periods, as the tax rates remained constant.
4. Accounting and legal fees decreased to $6,597 for the year ended December 31, 1995, from $12,741 for the comparable period in 1994. The decrease is due to reduction in the cost of these professional services.
5. Storage, repositioning and other expenses decreased to $7,979 for the year ended 1995, from $13,208 for the comparable period in 1994. The decrease is primarily due to the timing of payments of these expenses during comparable periods.
Other changes in cash:
1. Prepaid mileage, reimbursable repairs and other expenses are composed primarily of receipts of mileage credits from railroads which are due to lessees, net of reimbursable repairs from lessees. The funds increased by $119,933 during the year ended December 31, 1995, as compared to an increase of $130,846 for the comparable period in 1994. The decrease between comparable periods is primarily due to the timing of net receipts and repayments of these funds by the Program.
2. Management fees increased to $262,458 for the year ended December 31, 1995, from $244,940 for the comparable period in 1994. This increase was due to an incentive management fee of $37,080 paid to IMI in 1995 compared to an incentive management fee of $15,225 paid in 1994.
As a result of the foregoing and other factors, the Program distributed $1,731,469 to investors for the year ended December 31, 1995, a 6% increase from the $1,630,674 paid in 1994.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Statements of Revenues Collected and Expenses Paid and Other Changes in Cash for the three years ended December 31, 1996, are included on the Index to Financial Statements as part of Item 14(a) of this Annual Report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
As of the date of this Annual Report, the directors and executive officers of PLM International (and key executive officers of its subsidiaries) are as follows:
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., 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 had 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 Program has no directors, officers, or employees. The Program has no pension, profit-sharing, retirement, or similar benefit plan in effect as of December 31, 1996.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Program is not a legal entity. The Program itself does not have any securities. The Program has neither directors nor executive officers. However, the Cars sold to investors who have entered into Management Agreements are managed by IMI. Neither the Manager, its affiliates nor any officer or director of the Manager or its affiliates own any Cars.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with Management and Others
During 1996, $271,533 in management fees was paid to the Manager by participants in the Program.
(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 statements listed in the accompanying Index to Financial Statements are filed as part of this Annual Report.
2. Financial Statement Schedules
None.
(b) Reports on Form 8-K
None.
(c) Exhibits
10.1 Form of Management Agreement, incorporated by reference to the Program's Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 2, 1990.
25. Power 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.
The Registrant is not a legal entity. PLM Investment Management, Inc., the Manager, has signed on behalf of the Registrant by its duly authorized officers.
RMI COVERED HOPPER RAILCAR MANAGEMENT PROGRAM 79-1 Date: March 14, 1997 Registrant
By: PLM Investment Management, Inc. Manager
By: /s/ Stephen M. Bess ------------------------- Stephen M. Bess President
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 IMI on the dates indicated.
Name Capacity Date
* Stephen M. Bess Director March 14, 1997
* Douglas P. Goodrich Director March 14, 1997
* Stephen Peary Director 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
RMI COVERED HOPPER RAILCAR MANAGEMENT PROGRAM 79-1
(Item 14(a))
Page
Report of Independent Auditors 17
Statements of revenues collected and expenses paid and other changes in cash for the years ended December 31, 1996, 1995 and 1994 18
Notes to the statements of revenues collected and expenses paid and other changes in cash 19-20
All financial statement schedules have been omitted as the required information is not pertinent to the Registrant or is not material, or because the information required is included in the statements and notes thereto.
REPORT OF INDEPENDENT AUDITORS
The Equipment Owners in RMI Covered Hopper Railcar Management Program 79-1
We have audited the accompanying financial statements of RMI Covered Hopper Railcar Management Program 79-1 (the Program) as listed in the accompanying index. These financial statements are the responsibility of the Program'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 these 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 accompanying financial statements were prepared to present the revenues collected and expenses paid and other changes in cash of RMI Covered Hopper Railcar Management Program 79-1 pursuant to the management agreement described in Note 1 and are not intended to be a complete presentation of the Program's financial position, results of operations and cash flows in conformity with generally accepted accounting principles.
In our opinion, the accompanying financial statements present fairly, in all material respects, the revenues collected and expenses paid and other changes in cash of RMI Covered Hopper Railcar Management Program 79-1 for each of the years in the three-year period ended December 31, 1996, on the cash basis of accounting described in Note 1.
/S/ KPMG PEAT MARWICK LLP - ---------------------------
San Francisco, California March 14, 1997
RMI COVERED HOPPER RAILCAR MANAGEMENT PROGRAM 79-1 STATEMENTS OF REVENUES COLLECTED AND EXPENSES PAID AND OTHER CHANGES IN CASH For the Years Ended December 31,
See accompanying notes to the financial statements.
RMI COVERED HOPPER RAILCAR MANAGEMENT PROGRAM 79-1 NOTES TO THE STATEMENTS OF REVENUES COLLECTED AND EXPENSES PAID AND OTHER CHANGES IN CASH December 31, 1996
1. Basis of Presentation
RMI Covered Hopper Railcar Management Program 79-1 (the Program) is not a legal entity. The statements of revenues collected and expenses paid and other changes in cash (the Statements) of the Program are presented on the cash basis of accounting, used for reporting to investors in the Program in accordance with the Management Agreement with PLM Investment Management, Inc. (IMI). Under the cash basis of accounting, revenues are recognized when received, rather than when earned, and expenses are recognized when paid, rather than when the obligation is incurred. Accordingly, the Statements are not intended to present the financial position, results of operations or cash flows in accordance with generally accepted accounting principles.
2. Operations
The Program is managed by IMI, a wholly owned subsidiary of PLM Financial Services, Inc. (FSI). FSI, in conjunction with its subsidiaries, syndicated investor programs, sells transportation equipment to investor programs and third parties, manages pools of transportation equipment under management agreements with the investor programs, and is also a general partner of several limited partnerships. The investors are liable for the obligations and liabilities of the Program.
As of December 31, 1996, monthly management fees of $38 per car are charged directly to the individual investors with respect to cars being managed pursuant to five-year extensions made to the original management agreements which had original terms of ten years. In addition, IMI earns an incentive management fee equal to 15% of Net Earnings (as defined in the original Management Agreement) over $750 per car per quarter. Prior to the five-year extensions, management fees were being charged at the rate of $55 per car.
At December 31, 1996, 469 cars (495 cars at December 31, 1995 and 1994) which are owned by the investors, were being managed by IMI under the Program, all of which were covered by lease arrangements at December 31, 1996. During 1996, five cars were added, 31 cars were sold or destroyed and 14 cars were transferred from some investors to other investors within the Program and IMI received a commission fee of $51,960 to handle the sale and transfer.
3. Revenues and Expenses
Operating revenues and expenses of the Program are pooled and allocated to participants based on available car-days as defined in the Management Agreement. Revenues are earned by placing the railcars under leases, and are billed monthly. As of December 31, 1996, all 469 cars were leased on a fixed rate basis.
RMI COVERED HOPPER RAILCAR MANAGEMENT PROGRAM 79-1 NOTES TO THE STATEMENT OF REVENUES COLLECTED AND EXPENSES PAID AND OTHER CHANGES IN CASH December 31, 1996
3. Revenues and Expenses (continued)
The lessees accounting for 10% or more of lease revenues collected during 1996, 1995 and 1994 were Louis Dreyfus Corp. (14% in 1996, 14% in 1995, and 13% in 1994), Canadian Pacific Railroad (17% in 1996, 16% in 1995, and 19% in 1994), San Luis Central Railroad Co. (15% in 1996, 13% in 1995, and 14% in 1994), Union Pacific Railroad (21% in 1996, 24% in 1995, and 26% in 1994), and General Chemical Co. (12% in 1996, 14% in 1995 and 10% in 1994).
4. Equalization Reserve
Under the terms of the Management Agreement, IMI may, at its discretion, cause the Program to retain a certain amount of cash (the working capital reserve) to cover future disbursements and provide for a balanced distribution of funds to the investors each quarter. IMI has determined the working capital reserve at December 31, 1996 to be $910,989 ($873,359 and $956,308 at December 31, 1995 and 1994, respectively). Any retained cash has been invested in an interest bearing account at a rate of 4.5% at December 31, 1996 (5.38% and 2.47% at December 31, 1995 and 1994, respectively).
RMI COVERED HOPPER RAILCAR MANAGEMENT PROGRAM 79-1
INDEX OF EXHIBITS
Exhibit Page
10.1 Form of Management Agreement *
25. Power of Attorney 22
* Incorporated by reference. See page 13 of this report.