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 were to invest in equipment which would:
(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. 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 (see Financial Statements, Notes 1 and 2). The Partnerships' management agreements with IMI are to co-terminate with the dissolution of the Partnerships, unless the Partners vote to terminate the agreement prior to that date or at the discretion of the General Partner.
TEP IXA
The offering of limited partnership units (the "Units") of PLM Transportation Equipment Partners IXA 1986 Income Fund (TEP IXA) 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, 1997, TEP IXA owned 38 trailers. During 1997, TEP IXA sold or disposed of trailers and marine containers. At December 31, 1997, all of the Partnership's trailer equipment was being operated in rental yards owned and maintained by an affiliate of the General Partner. Revenues 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 indirect expenses of the rental yard operations is charged to the Partnership monthly.
TEP IXB
The offering of Units of PLM Transportation Equipment Partners IXB 1986 Income Fund (TEP IXB) 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, 1997, TEP IXB owned 6 trailers. During 1997, TEP IXB sold or disposed of trailers and marine containers. At December 31, 1997, all of the Partnership's trailer equipment was being operated in rental yards owned and maintained by an affiliate of the General Partner. Revenues 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 indirect expenses of the rental yard operations is charged to the Partnership monthly.
TEP IXC
The offering of Units of PLM Transportation Equipment Partners IXC 1986 Income Fund (TEP IXC) 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, 1997, TEP IXC owned 64 trailers. During 1997, TEP IXC disposed of trailers and marine containers. At December 31, 1997, all of the Partnership's trailer equipment was being operated in rental yards owned and maintained by an affiliate of the General Partner. Revenues 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 indirect expenses of the rental yard operations is charged to the Partnership monthly.
TEP IXD
The offering of Units of PLM Transportation Equipment Partners IXD 1986 Income Fund (TEP IXD) 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, 1997, TEP IXD owned 22 trailers. During 1997, TEP IXD disposed of marine containers and trailers. At December 31, 1997, all of the Partnership's trailer equipment was being operated in rental yards owned and maintained by an affiliate of the General Partner. Revenues 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 indirect expenses of the rental yard operations is charged to the Partnership monthly.
(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 leases. 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, Transport International Pool, Xtra Leasing, and other limited partnerships which lease the same types of equipment.
(D) Demand
The Partnerships have investments in transportation-related capital equipment. The Partnerships' equipment is used to transport materials and commodities, rather than people.
(1) Over-the-Road Dry Trailers
The United States over-the-road dry trailer market began to recover in mid-1997, as an oversupply of equipment from 1996 subsided. The strong domestic economy, a continuing focus on integrated logistics planning by American companies, and numerous service problems on Class I railroads contributed to the recovery in the dry van market. In addition, federal regulations requiring antilock brake systems on all new trailers, effective in March 1998, have helped stimulate new trailer production, and the market is anticipated to remain strong in the near future. There continues to be much consolidation of the trailer leasing industry in North America, as the two largest lessors of dry vans now control over 60% of the market. The reduced level of competition, coupled with anticipated continued strong utilization, may lead to an increase in rates. Utilization on these trailers increased in 1997.
(2) Over-the-Road Refrigerated Trailers
The temperature-controlled over-the-road trailer market recovered in 1997; freight levels improved and equipment oversupply was reduced as industry players actively retired older trailers and consolidated fleets. Most refrigerated carriers posted revenue growth of between 2% and 5% in 1997, and accordingly are planning fleet upgrades. In addition, with refrigeration and trailer technologies changing rapidly and industry regulations becoming tighter, trucking companies are managing their refrigerated fleets more effectively.
As a result of these changes in the refrigerated trailer market, it is anticipated that trucking companies will utilize short-term trailer leases more frequently to supplement their fleets. Such a trend should benefit the Partnerships, which generally leases its equipment on a short-term basis from rental yards owned and operated by PLM subsidiaries. The Partnerships' utilization, especially in the second half of 1997, was significantly higher than 1996 levels.
(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) 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.
As of December 31, 1997, the Partnership is in compliance with the above government regulations. Typically, costs related to extensive modifications are passed on to the lessee of that equipment.
ITEM 2.
ITEM 2. PROPERTIES
The Partnerships neither own nor lease any properties other than the equipment they have purchased for lease to others. As of December 31, 1997, each Partnership owned a portfolio of transportation equipment as described in Part I, Item 1. The Partnerships will not purchase any additional equipment but may make capital repairs to the current portfolio of equipment which extend or increase the economic life.
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, 1997.
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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, 1997:
TEP IXA TEP IXB TEP IXC TEP IXD
Holders of limited partnership units 1,012 614 534 329
Effective January 1, 1998, each of the Partnerships' remaining assets were transferred into a liquidating trust. Under the terms of the trust agreement, no transfers will be allowed except for those transfers relating to inheritance issues and pension plan distributions.
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ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Table 1, below, lists selected financial data for the respective Partnerships:
TABLE 1
For the years ended December 31,
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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
As discussed in Note 5 to each of the accompanying financial statements and (E) below, the General Partner is actively marketing the remaining equipment portfolio with the intent of maximizing sale proceeds.
(C) Market Values
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" (SFAS 121). This standard is effective for years beginning after December 15, 1995. 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, 1997, 1996, or 1995.
As of December 31, 1997, the General Partner estimated the current fair market value of each Partnerships' equipment portfolio to be approximately : $0.2 million, $0.1 million, $0.4 million, and $0.1 million for TEP IXA, TEP IXB, TEP IXC, and TEP IXD, respectively.
(D) Government Regulations
The General Partner operates the Partnership's 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
With the majority of the equipment portfolio now liquidated, the Partnerships' remaining assets were transferred into a liquidating trust as of January 1, 1998 (see Note 5 to each of the accompanying financial statements). Any excess proceeds over expected obligations will be distributed to the beneficiaries in the liquidating trust.
(F) Results of Operations - Year to Year Detail Comparison
(1) Comparison of the Registrant's Operating Results for the Years Ended December 31, 1997 and 1996
TEP IXA
(a) Revenues
Lease revenue decreased to $242,415 in 1997 from $414,957 in 1996. The following table lists lease revenues earned by equipment type:
For the Years Ended December 31, 1997 1996 -------------------------------- Trailers $ 181,281 $ 263,473 Marine containers 61,134 112,994 Rail equipment -- 38,490 ----------------------------------- $ 242,415 $ 414,957 ===================================
The decline was due primarily to the following:
(i) Trailer revenue decreased $82,192 from 1997 levels due to the disposition of trailers during 1997 and 1996.
(ii) Marine container revenue decreased $51,860 due to the disposition of the Partnership's remaining marine containers during 1997.
(iii) Rail revenue decreased $38,490 from 1997 levels due to the sale of the Partnership's remaining railcars during the third quarter of 1996.
Interest and Other Income
Interest and other income decreased to $14,419 in 1997 from $22,545 in 1996 due primarily to lower average cash balances available for investments.
Net Gain on Disposition of Equipment
For the year ended December 31, 1997, the Partnership realized a gain of $257,476 on disposition of trailers and marine containers, compared to the same period in 1996, where the Partnership realized a gain of $340,836 on the disposition of trailers, marine containers, and railcars.
(d) Expenses
Total expenses for the years ended December 31, 1997 and 1996, were $301,457 and $457,903, respectively. The decrease in 1997 expenses was attributable primarily to decreased repairs and maintenance, depreciation expense, general and administrative expense, and bad debt expense.
(1) Direct Operating Expenses (defined as repairs and maintenance and insurance) decreased to $39,282 in 1997 from $64,875 in 1996. 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 $262,175 in 1997 from $393,028 in 1996. This change resulted from:
(i) a $62,035 decrease in depreciation expense from 1997 levels resulting from the disposition of equipment in 1997 and 1996.
(ii) a $47,855 decrease in general and administrative expense from 1996 levels due primarily to lower accounting and data processing costs, and lower administrative costs associated with the short-term rental facilities due to a decreased volume of trailers in these facilities.
(iii) a $20,116 decrease in bad debt expense primarily due to the collection of receivables that were previously reserved for as bad debt.
(e) Net Income
As a result of the foregoing, net income for the year ended December 31, 1997, was $212,853 compared to $320,435 for the year ended December 31, 1996. 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, 1997, is not necessarily indicative of future periods. In 1997, TEP IXA distributed $429,332 to the limited partners, or $17.68 per weighted-average unit which included a special distribution of $15.00 per weighted-average unit.
TEP IXB
Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance and asset specific insurance expenses) on owned equipment decreased for the year ended December 31, 1997 when compared to the same period of 1996. The following table presents lease revenues less direct expenses by owned equipment type:
Marine containers: Marine container revenues and direct expenses were $15,363 and $365, respectively, for the twelve months ended December 31, 1997, compared to $26,960 and $210, respectively, during the same period of 1996. The decrease in marine container net contribution resulted from the disposition of the Partnership's remaining marine containers during 1997.
Trailers: Trailer revenues and direct expenses were $27,633 and $16,298, respectively, for the twelve months ended December 31, 1997, compared to $154,805 and $42,370, respectively, during the same period of 1996. The number of trailers owned by the Partnership declined in 1997 due to sales and dispositions. The result of this declining fleet was a decrease in trailer net contribution.
Railcar equipment: Railcar revenues and direct expenses were zero and $324, respectively, for the twelve months ended December 31, 1997, compared to $67,953 and $5,277, respectively, during the same period of 1996. The decrease in net contribution was due to the sale of all railcars owned by the Partnership in the fourth quarter of 1996.
(b) Indirect Expenses Related to Owned Equipment
Total indirect expenses of $149,323 for the year ended December 31, 1997, decreased from $269,262 for the same period of 1996. Significant variance is explained as follows:
(i) a $71,146 decrease in depreciation expense from 1996 levels reflecting assets sales or dispositions during 1997 and 1996.
(ii) a $44,407 decrease in general and administrative expenses from 1996 levels. This reflects the decreased accounting and data processing costs, and lower administrative costs associated with the short-term rental facilities due to decreased volume of trailers in these facilities.
(iii) a $4,386 decrease in bad debt expense primarily due to the collection of receivables that were previously reserved for as bad debt.
(c) Net Gain on Disposition of Equipment
For the twelve months ended December 31, 1997, the Partnership realized a gain of $135,655 on the disposal of marine containers and trailers compared to 1996, where the Partnership realized a gain of $272,183 on the disposal of railcars, marine containers, and trailers.
(d) Interest and Other Income
Interest and other income decreased $7,633 in 1997 due primarily to lower average cash balances available for investments.
(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). The Partnership liquidated its interest in this entity in 1996.
(f) Net Income
As a result of the foregoing, the Partnership generated net income of $22,375 for the year ended December 31, 1997, compared to $473,377 in the same period in 1996. 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, 1997, is not necessarily indicative of future periods. For the year ended December 31, 1997, the Partnership distributed $606,482 to the limited partners, or approximately $34.74 per weighted-average unit which included a special distribution of $32.01 per weighted-average unit.
TEP IXC
Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance and asset specific insurance expenses) on owned equipment decreased for the year ended December 31, 1997 when compared to the same period of 1996. The following table presents lease revenues less direct expenses by owned equipment type:
Trailers: Trailer revenues and direct expenses were $251,235 and $70,299, respectively, for the twelve months ended December 31, 1997, compared to $330,604 and $109,461, respectively, during the same period of 1996. The number of trailers owned by the Partnership declined in 1997 due to sales and dispositions. The result of this declining fleet was a decrease in trailer net contribution.
Marine containers: Marine container revenues and direct expenses were $3,248 and $135, respectively, for the twelve months ended December 31, 1997, compared to $5,579 and $78, respectively, during the same period of 1996. The decrease in marine container net contribution resulted from the sale of the Partnership's remaining marine containers during 1997.
Railcar equipment: Railcar revenues and direct expenses were zero and $104, respectively, for the twelve months ended December 31, 1997, compared to $26,520 and $4,812, respectively during the same period of 1996. The decrease in net contribution was due to the sale of all railcars owned by the Partnership in the fourth quarter of 1996.
(b) Indirect Expenses Related to Owned Equipment
Total indirect expenses of $287,340 for the year ended December 31, 1997, decreased from $384,061 for the same period of 1996. Significant variance is explained as follows:
(i) a $74,581 decrease in depreciation expense from 1996 levels reflecting asset sales during 1997 and 1996.
(ii) a $45,632 decrease in general and administrative expenses due to lower accounting and data processing costs, and lower administrative costs associated with the short-term rental facilities due to a decreased volume of trailers operating in these facilities.
(iii) a $24,379 increase in bad debt expense was primarily due to the payment of receivables in 1996 that had been written off in prior years. There was no similar payment of written off receivables in 1997.
(c) Net Gain on Disposition of Equipment
For the year ended December 31, 1997, the Partnership realized a gain of $210,332 on the sale of trailers and marine containers, compared to the same period in 1996, when the Partnership realized a gain of $114,942 on the sale of trailers, railcars, and a marine container.
(d) Interest and Other Income
Interest and other income decreased $6,031 due to lower average cash balances available for investments.
(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). The Partnership liquidated its interest in this entity in 1996.
(f) Net Income
As a result of the foregoing, the Partnership's net income increased to $115,466 for the year ended December 31, 1997, from $105,040 in the same period in 1996. 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, 1997, is not necessarily indicative of future periods. For the year ended December 31, 1997, the Partnership distributed $518,990 to the limited partners, or approximately $30.69 per weighted-average unit which included a special distribution of $27.35 per weighted-average unit.
TEP IXD
(a) Revenues
Lease revenue decreased to $83,743 in 1997 from $151,115 in 1996. The following table lists lease revenues earned by equipment type:
For the Years Ended December 31, 1997 1996 -------------------------------- Trailers $ 46,835 $ 100,780 Marine containers 36,908 50,335 ----------------------------------- $ 83,743 $ 151,115 ===================================
The decrease was due to the following:
(i) Trailer revenue decreased $53,945 in 1997 as compared to 1996 levels, due to the sale of trailers during 1997 and 1996.
(ii) Marine container revenue decreased $13,427 in 1997 as compared to 1996 levels due to the sale of all the Partnership's marine container during 1997.
(b) Net Gain on Disposition of Equipment
Net gain on disposition of equipment of $189,003 in 1997 resulted from the sale or disposal of marine containers and trailers. The gain on disposition of equipment in 1996 totaled $44,879 which resulted from the sale or disposal of marine containers and trailers.
(c) Expenses
Total expenses for the years ended December 31, 1997 and 1996 were $145,539 and $219,171, respectively. The decrease in 1997 expenses was attributable primarily to decreased repairs and maintenance, general and administrative expenses, and depreciation, partially offset by an increase in bad debt expenses.
(1) Direct Operating Expenses (defined as repairs and maintenance and insurance) decreased to $18,724 in 1997 from $30,997 in 1996. The decrease resulted primarily from the disposition of trailers and containers in 1997 and 1996.
(2) Indirect Operating Expenses (defined as depreciation and amortization expense, management fees, bad debt expense, and general and administrative expenses) decreased to $126,815 in 1997 from $188,174 in 1996. This change resulted from:
(i) a $40,262 decrease in general and administrative expenses due to lower accounting and data processing costs, and lower administrative costs associated with the short-term rental facilities due to decreased volume of trailers in these facilities.
(ii) a $28,743 decrease in depreciation expense from 1996 levels reflecting assets sales during 1997 and 1996.
(iii) an increase of $7,646 in bad debt expense was primarily due to the payment of receivables in 1996 that had been written off in prior years. There was no similar payment of written off receivables in 1997.
(d) Net Income (Loss)
As a result of all of the foregoing, the Partnership generated a net income for the year ended December 31, 1997 of $132,689 compared with a net loss of $16,671 for the year ended December 31, 1996. 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, 1997, is not necessarily indicative of future periods. For the year ended December 31, 1997, TEP IXD distributed $208,941 to the limited partners, or $21.93 per weighted-average unit which included a special distribution of $20.00 per weighted-average unit.
(2) Comparison of the Registrant's Operating Results for the Years Ended December 31, 1996 and 1995
TEP IXA
(a) Revenues
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 Years 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:
(i) 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 trailers in 1996 and 1995.
(ii) Marine container revenue decreased $5,631 due to a decline in utilization from 1995 levels, and the disposal of marine containers in 1996 and 1995.
(iii) 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.
(b) Interest and Other Income
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.
(c) Net Gain on Disposition of Equipment
For the year ended December 31, 1996, the Partnership realized a gain of $340,836 on the sale or disposition of trailers, marine containers, and railcars, compared to the same period in 1995, where the Partnership realized a gain of $555,733 on the sale or disposition of a trailer, a commuter aircraft, and marine containers.
(d) 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:
(i) a $114,277 decrease in depreciation expense from 1996 levels resulting from the sale or disposal of trailers, marine containers, and railcars in 1996.
(ii) 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.
(iii) a $66,292 increase in bad debt expense due to the General Partner's evaluation of the collectibility of the trade receivables.
(e) Net Income
As a result 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
Lease revenues less direct expenses (defined as repairs and maintenance and asset specific insurance expenses) on owned equipment decreased for the year ended December 31, 1996 when compared to the same period of 1995. The following table presents lease revenues less direct expenses by owned equipment type:
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. Significant variance is explained as follows:
(i) 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.
(ii) a $39,977 decrease in depreciation expense from 1995 levels reflecting assets sales or dispositions during 1996 and 1995.
(iii) 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) Net Gain on Disposition of Equipment
For the twelve months ended December 31, 1996, the Partnership realized a gain of $272,183 on the disposal of railcars, marine containers, and trailers compared to 1995, where the Partnership realized a gain of $113,206 on the sale or disposition of trailers and 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).
(f) Net Income
As a result of the foregoing, 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
Lease revenues less direct expenses (defined as repairs and maintenance and asset specific insurance expenses) on owned equipment decreased for the year ended December 31, 1996 when compared to the same period of 1995. The following table presents lease revenues less direct expenses by owned equipment type:
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. Significant variance is explained as follows:
(i) 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.
(ii) a $26,636 decrease in depreciation expense from 1995 levels reflecting asset sales during 1996 and 1995.
(iii) 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.
(iv) 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) Net Gain on Disposition of Equipment
For the year ended December 31, 1996, the Partnership realized a gain of $114,942 on the sale of trailers, railcars, and a marine container, compared to the same period in 1995, when the Partnership realized a gain of $229,599 on the sale or disposal of trailers, twin stack railcars, and a marine container.
(d) Interest and Other Income
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
As a result of the foregoing, 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
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 Years 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:
(i) 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.
(ii) 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.
(b) Interest and Other Income
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.
(c) Net gain on Disposition of Equipment
Net gain on disposition of equipment of $44,879 in 1996 resulted from the sale or disposal of marine containers and trailers. The gain on disposition of equipment in 1995 totaled $83,235 which resulted from the sale or disposal of marine containers and trailers.
(d) 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:
(i) a $33,903 decrease in bad debt expense due to the General Partner's evaluation of the collectibility of trade receivables.
(ii) a $31,308 decrease in general and administrative expenses due to lower accounting costs and administrative costs associated with the short-term rental facilities.
(iii) a $19,593 decrease in depreciation expense from 1996 levels reflecting assets sales during 1996 and 1995.
(e) Net Income (Loss)
As a result 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.
Geographic Information
The Partnerships operated some of their equipment in international markets. Although these operations exposed the Partnerships to certain currency, political, credit and economic risks, the General Partner believed these risks were minimal or had implemented strategies to control the risks as follows: Currency risks were at a minimum because all invoicing, with the exception of a small number of railcars operating in Canada, was conducted in U.S. dollars. Political risks were minimized generally through the avoidance of operations in countries that did not have a stable judicial system and established commercial business laws. Credit support strategies for lessees ranged from letters of credit supported by U.S. banks to cash deposits. Although these credit support mechanisms generally allowed the Partnership to maintain its lease yield, there were risks associated with slow-to-respond judicial systems when legal remedies were required to secure payment or repossess equipment. Economic risks were inherent in all international markets and the General Partner strove 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.
TEP IXA:
The Partnership's equipment on lease to U.S. domiciled lessees accounted for 75% of the revenues generated by wholly-owned equipment while net income accounted for $136,479 of the $212,853 in net income for the entire Partnership.
The Partnership's various marine containers, which were leased in various regions throughout 1997, accounted for 25% of the lease revenues generated by wholly-owned equipment, while the net income accounted for $161,194 for the Partnership's total net income of $212,853. The Partnership sold its marine containers during 1997.
TEP IXC:
The Partnership's owned equipment on lease to U.S. domiciled lessees accounted for 99% of the revenues generated by wholly-owned equipment while net income accounted for $178,785 of the $115,466 in net income for the entire Partnership.
The Partnership's various marine containers, which were leased in various regions throughout 1997, accounted for 1% of the lease revenues generated by wholly-owned equipment, while the net income accounted for $5,961 for the Partnership's total net income of $115,466. The Partnership sold its marine containers during 1997.
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.
Year 2000 Compliance
The General Partner is currently addressing the Year 2000 computer software issue. The General Partner is creating a timetable for carrying out any program modifications that may be required. The General Partner does not anticipate that the cost of these modifications allocable to the Partnership will be material.
Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued two new statements: SFAS No. 130, "Reporting Comprehensive Income," which requires enterprises to report, by major component and in total, all changes in equity from nonowner sources; and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes annual and interim reporting standards for a public Partnership's operating segments and related disclosures about its products, services, geographic areas, and major customers. The Trustee has applied to the Securities and Exchange Commission (SEC) to terminate the Trust's obligation to file Form 10-Q and Form 10-K. If approved by the SEC, the Trustee will discontinue all future filings of these reports (see Note 5). As such, it is not anticipated that these pronouncements will have an impact on the Partnerships.
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 PLM INTERNATIONAL AND PLM FINANCIAL SERVICES, INC.
As of the date of this annual report, the directors and executive officers of PLM International (and key executive officers of its subsidiaries) and of PLM Financial Services, Inc. are as follows:
Robert N. Tidball was appointed Chairman of the Board in August 1997 and 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. Mr. Tidball was appointed Director of PLM Financial Services, Inc. in July 1997 and was elected President of PLM Worldwide Management Services Limited in February 1998. He has served as an officer of PLM Railcar Management Services, Inc. since June 1987. 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, he was Vice President, General Manager, and Director of North American Car Corporation and a director of the American Railcar Institute and the Railway Supply Association.
Randall L.-W. Caudill was elected to the Board of Directors in September 1997. He is President of Dunsford Hill Capital Partners, a San Francisco-based financial consulting firm serving emerging growth companies in the United States and abroad, as well as a senior advisor to the investment banking firm of Prudential Securities, where he has been employed since 1987. Mr. Caudill also serves as a director of VaxGen, Inc. and SBE, Inc.
Douglas P. Goodrich was elected to the Board of Directors in July 1996, appointed Senior Vice President of PLM International in March 1994, and appointed Director and President of PLM Financial Services, Inc. in June 1996. 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 Corporation of Chicago, Illinois, from December 1980 to September 1985.
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 Sugar), a recently acquired subsidiary of Alexander & Baldwin, Inc. Mr. Somerset joined C&H Sugar 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 of Agriculture and 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 US 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 L. Witt was elected to the Board of Directors in June 1997. Since 1993, Mr. Witt has been a principal with WWS Associates, a consulting and investment group specializing in start-up situations and private organizations about to go public. Prior to that, he was Chief Executive Officer and Chairman of the Board of Hexcel Corporation, an international advanced materials company with sales primarily in the aerospace, transportation, and general industrial markets. Mr. Witt also serves on the boards of directors for various other companies and organizations.
J. Michael Allgood was appointed Vice President and Chief Financial Officer of PLM International in October 1992 and Vice President and Chief Financial Officer of PLM Financial Services, Inc. in December 1992. Between July 1991 and October 1992, Mr. Allgood was a consultant to various private and public-sector companies and institutions specializing in financial operations 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 Director of PLM Financial Services, Inc. in July 1997. Mr. Bess was appointed President of PLM Securities Corporation 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 Corporation, a manufacturer of computer peripheral equipment, from October 1975 to November 1978.
Richard K Brock was appointed Vice President and Corporate Controller of PLM International and PLM Financial Services, Inc. in June 1997, having served as an accounting manager beginning in September 1991 and as Director of Planning and General Accounting beginning in February 1994. Mr. Brock was a division controller of Learning Tree International, a technical education company, from February 1988 through July 1991.
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 of PLM Transportation Equipment Corporation's Air Group in November 1992, and was appointed Vice President and Director of PLM Worldwide Management Services Limited in September 1995. Mr. Layne was its Vice President, Commuter and Corporate Aircraft beginning in July 1990. Prior to joining PLM, Mr. Layne was Director of 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 a senior pilot with 13 years of accumulated service.
Susan C. Santo became Vice President, Secretary, and General Counsel of PLM International and PLM Financial Services, Inc. in November 1997. She has worked as an attorney for PLM International since 1990 and served as its Senior Attorney since 1994. Previously, Ms. Santo was engaged in the private practice of law in San Francisco. Ms. Santo received her J.D. from the University of California, Hastings College of the Law.
Thomas L. Wilmore was appointed Vice President, Rail of PLM Transportation Equipment Corporation in March 1994, and has served as Vice President of Marketing for PLM Railcar Management Services, Inc. since May 1988. Prior to joining PLM, Mr. Wilmore was Assistant Vice President and Regional Manager for MNC Leasing Corporation in Towson, Maryland from February 1987 to April 1988. From July 1985 to February 1987, he was President and co-owner of Guardian Industries Corporation, Chicago, 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 PLM International, Inc. are elected for a three-year term and the directors of PLM Financial Services, Inc. are elected for a one-year term or until their successors are elected and qualified. No family relationships exist between any director or executive officer of PLM International Inc. or PLM Financial Services, Inc..
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, 1997.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
At December 31, 1997, 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 1997, management fees paid or accrued to IMI were: $60,713, $43,650, $42,273 and $23,822 for TEP IXA, TEP IXB, TEP IXC and TEP IXD, respectively. During 1997, administrative services performed on behalf of the Partnerships were reimbursed to FSI and its affiliates as follows: $46,454, $12,853, $67,777 and $14,528 for TEP IXA, TEP IXB, TEP IXC and TEP IXD, 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) 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 27, 1998 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/ Richard K Brock ---------------------------- Richard K Brock 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
*_____________________________ Robert N. Tidball Director-FSI March 27, 1998
*_____________________________ Douglas P. Goodrich Director-FSI March 27, 1998
*_____________________________ Stephen M. Bess Director-FSI March 27, 1998
* Susan C. Santo, by signing her name hereto, does sign this document on behalf of the persons indicated above pursuant to powers-of-attorney duly executed by such persons and filed with the Securities and Exchange Commission.
/s/ Susan C. Santo - -------------------------- Susan C. Santo Attorney-in-Fact
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 27, 1998 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/ Richard K Brock ----------------------------- Richard K Brock 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
*_____________________________ Robert N. Tidball Director-FSI March 27, 1998
*_____________________________ Douglas P. Goodrich Director-FSI March 27, 1998
*_____________________________ Stephen M. Bess Director-FSI March 27, 1998
* Susan C. Santo, by signing her name hereto, does sign this document on behalf of the persons indicated above pursuant to powers-of-attorney duly executed by such persons and filed with the Securities and Exchange Commission.
/s/ Susan C. Santo - ------------------------------- Susan C. Santo Attorney-in-Fact
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 27, 1998 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/ Richard K Brock ---------------------------- Richard K Brock 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
*_____________________________ Robert N. Tidball Director-FSI March 27, 1998
*_____________________________ Douglas P. Goodrich Director-FSI March 27, 1998
*_____________________________ Stephen M. Bess Director-FSI March 27, 1998
* Susan C. Santo, by signing her name hereto, does sign this document on behalf of the persons indicated above pursuant to powers-of-attorney duly executed by such persons and filed with the Securities and Exchange Commission.
/s/ Susan C. Santo - ---------------------------- Susan C. Santo Attorney-in-Fact
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 27, 1998 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/ Richard K Brock --------------------------- Richard K Brock 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
*_____________________________ Robert N. Tidball Director-FSI March 27, 1997
*_____________________________ Douglas P. Goodrich Director-FSI March 27, 1997
*_____________________________ Stephen M. Bess Director-FSI March 27, 1998
* Susan C. Santo, 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/ Susan C. Santo - --------------------------- Susan C. Santo 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, 1997 and 1996 35
Statements of income for the years ended December 31, 1997, 1996, and 1995 36
Statements of changes in partners' capital for the years ended December 31, 1997, 1996, and 1995 37
Statements of cash flows for the years ended December 31, 1997, 1996, and 1995 38
Notes to financial statements 39-43
TEP IXB
Report of Independent Auditors 44
Balance sheets at December 31, 1997 and 1996 45
Statements of income for the years ended December 31, 1997, 1996, and 1995 46
Statements of changes in partners' capital for the years ended December 31, 1997, 1996, and 1995 47
Statements of cash flows for the years ended December 31, 1997, 1996, and 1995 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 of Independent Auditors 54
Balance sheets at December 31, 1997 and 1996 55
Statements of income for the years ended December 31, 1997, 1996, and 1995 56
Statements of changes in partners' capital for the years ended December 31, 1997, 1996, and 1995 57
Statements of cash flows for the years ended December 31, 1997, 1996, and 1995 58
Notes to financial statements 59-64
TEP IXD
Report of Independent Auditors 65
Balance sheets at December 31, 1997 and 1996 66
Statements of operations for the years ended December 31, 1997, 1996, and 1995 67
Statements of changes in partners' capital for the years ended December 31, 1997, 1996, and 1995 68
Statements of cash flows for the years ended December 31, 1997, 1996, and 1995 69
Notes to financial statements 70-73
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 more fully described in note 5.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PLM Transportation Equipment Partners IXA 1986 Income Fund as of December 31, 1997 and 1996 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1997 in conformity with generally accepted accounting principles.
/S/ KPMG PEAT MARWICK LLP - ------------------------------------
SAN FRANCISCO, CALIFORNIA March 24, 1998
PLM TRANSPORTATION EQUIPMENT PARTNERS IXA 1986 INCOME FUND (A Limited Partnership) BALANCE SHEETS December 31,
See accompanying notes to financial statements.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXA 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 IXA 1986 INCOME FUND (A Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the years ended December 31, 1997, 1996, and 1995
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, 1997
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 or PLM International) and manages the affairs of the Partnership.
The net income (loss) and distributions of the Partnership are generally 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.
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, 1997
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, 1997, 1996, or 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 1997, 1996, and 1995). The General Partner is generally allocated a 1% share of the net income (loss) and the limited partners are allocated a 99% share of the net income (loss). The General Partner received a special allocation of income in the amount of $122,653 in 1997. The Partnership agreement provides for a special allocation to occur near the dissolution of the Partnership. No special allocation was received in 1996 or 1995.
Cash distributions are recorded when paid. Cash distributions to investors in excess of net income are considered to represent a return of capital. Cash and special distributions to limited partners of $341,261, $1,343,851, and $0, in 1997, 1996, and 1995, 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, 1997 and 1996.
The Partnership reimbursed FSI and its affiliates $46,454, $87,395, and $122,635 for administrative and other services performed on behalf of the Partnership in 1997, 1996, and 1995, respectively.
As of December 31, 1997, all of the Partnership's trailer equipment had been transferred into rental facilities operated by an affiliate of the General Partner. Revenues 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
PLM TRANSPORTATION EQUIPMENT PARTNERS IXA 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1997
2. General Partner and Transactions with Affiliates (continued)
the Partnership. An allocation of indirect expenses of the rental yard operations is charged to the Partnership monthly.
3. Equipment
The components of equipment at December 31, 1997 and 1996 are as follows:
Revenues are earned by placing the equipment under operating leases that 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 were leased to the operator of utilization-type pools which included equipment owned by unaffiliated parties. In such instances, revenues received by the Partnership consisted 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.
As of December 31, 1997, all equipment was operating in PLM-affiliated short-term rental facilities. As of December 31, 1996, 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 .
During 1997, the Partnership disposed of trailers and marine containers. During 1996, the Partnership sold or disposed of trailers, railcars, and marine containers.
All leases are being accounted for as operating leases with utilization-based rentals. Contingent rentals based upon utilization amounted to $61,134 in 1997, $112,994 in 1996, and $118,625 in 1995.
The only lessee accounting for 10% or more of the total revenues during 1997, 1996, or 1995 was Transamerica Leasing (25% in 1997, 27% in 1996, and 22% in 1995).
The Partnership owned certain equipment which was leased and operated internationally. A limited number of the Partnership's transactions were denominated in a foreign currency. Gains or losses resulting from foreign currency transactions are included in the results of operations and are not material.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXA 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1997
3. Equipment (continued)
The Partnership leased or leases its railcars and trailers to lessees domiciled in United States as of December 31, 1997. The marine containers were leased to lessees in different regions who operated 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, 1997, 1996, and 1995:
The net book value of these assets at December 31, 1997, 1996, and 1995 are as follows:
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, 1997, there were temporary differences of approximately $1.5 million between the financial statement carrying values of assets and liabilities and the federal income tax bases of such assets and liabilities. The differences were principally due to the differences in depreciation methods and the tax treatment of underwriting commissions and syndication costs.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXA 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1997
5. Subsequent Event
With the disposal of the majority of the equipment portfolio, the Partnership's remaining assets were transferred into a liquidating trust as of January 1, 1998. The sole Beneficiaries of the liquidating trust are the limited partners and the General Partner. The Trustees, as designated by the General Partner, are three officers of the General Partner. The amounts reflected for assets and liabilities of the Partnership have not been adjusted to reflect liquidation values. The equipment portfolio that is actively being marketed for sale by the Trustees continues to be carried at the lower of depreciated cost or fair value less cost of disposal. Although the Trustees estimate that there will be distributions to the Beneficiaries after final disposal of assets and settlement of liabilities, the amounts cannot be accurately determined prior to actual disposal of the equipment. Cash receipts (including proceeds from the sale of assets) in excess of expected obligations and reasonable reserves will be distributed to the Beneficiaries in the liquidating trust from time to time, but not less often than annually. Upon final liquidation, the liquidating trust will be dissolved.
For tax purposes, the liquidating trust will continue be treated as a partnership under Internal Revenue Regulation Section 301.7701-3(b)(1)(i). Partnership tax returns will be filed until all the liquidating trust assets are distributed.
The Trustees have applied to the Securities and Exchange Commission (SEC) to terminate the Trust's obligation to file Form 10-Q and Form 10-K. If approved by the SEC, the Trustees will discontinue all future filings of these reports.
6. Special Distributions
The General Partner paid special distributions of $15.00 and $57.07 per weighted-average limited partnership unit during 1997 and 1996, respectively. No special distributions were paid in 1995.
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 more fully described in note 5.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PLM Transportation Equipment Partners IXB 1986 Income Fund as of December 31, 1997 and 1996 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP - ------------------------------
SAN FRANCISCO, CALIFORNIA March 24, 1998
PLM TRANSPORTATION EQUIPMENT PARTNERS IXB 1986 INCOME FUND (A Limited Partnership) BALANCE SHEETS December 31,
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, 1997, 1996, and 1995
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, 1997
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 or PLM International) and manages the affairs of the Partnership.
The net income (loss) and distributions of the Partnership are generally 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.
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, 1997
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, 1997, 1996, or 1995.
Investments in Unconsolidated Special-Purpose Entity
The Partnership had an interest in an unconsolidated 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 1997, 1996, and 1995). The General Partner is generally allocated a 1% share of the net income (loss) and the limited partners are allocated a 99% share of the net income (loss). The General Partner received a special allocation of income in the amount of $88,183 in 1997. The Partnership agreement provides for a special allocation to occur near the dissolution of the Partnership. No special allocation was received in 1996 or 1995.
Cash distributions are recorded when paid. Cash distributions to investors in excess of net income are considered to represent a return of capital. Cash and special distributions to limited partners of $606,482, $374,221, and $585,258 in 1997, 1996, and 1995, 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
PLM TRANSPORTATION EQUIPMENT PARTNERS IXB 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1997
2. General Partner and Transactions with Affiliates (continued)
Partnership's "operating cash flow" or 1/12 of1/2% 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, 1997 and 1996.
The Partnership reimbursed FSI and its affiliates $12,853, $56,302, and $96,118 for administrative and other services performed on behalf of the Partnership in 1997, 1996, and 1995, respectively. The Partnership's proportional share of USPE's administrative and other services was $113 during 1996. No administrative and other service expenses were paid by the Partnership's proportional share of USPE's in 1997.
As of December 31, 1997, all of the Partnership's trailer equipment had been transferred into rental facilities operated by an affiliate of the General Partner. Revenues 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 indirect expenses of the rental yard operations is charged to the Partnership monthly.
3. Equipment
The components of owned equipment at December 31, 1997 and 1996 are as follows:
Revenues are earned by placing the equipment under operating leases that 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 were leased to the operator of utilization-type pools which included equipment owned by unaffiliated parties. In such instances revenues received by the Partnership consisted 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 operating in PLM-affiliated short-term rental facilities as of December 31, 1997. As of December 31, 1996, 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 .
During 1997, the Partnership sold or disposed of trailers and marine containers. During 1996, the Partnership sold or disposed of trailers, marine containers, and railcars.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXB 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1997
3. Equipment (continued)
The leases are being accounted for as operating leases with utilization-based rentals. Contingent rentals based upon utilization amounted to $15,363 in 1997, $26,960 in 1996, and $34,915 in 1995.
The lessees accounting for 10% or more of the total revenues during 1997, 1996, or 1995 were Transamerica Leasing (36% in 1997 and 11% in 1996) and Skywest Airlines, Inc. (36% in 1995).
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. Gains or losses resulting from foreign currency transactions are included in the results of operations and are not material.
The Partnership leases its trailers to lessees domiciled in the United States. The marine containers were leased to lessees in different regions who operated the marine containers worldwide.
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.
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 Interest of Partnership Total USPE ---------------------------------
Net Investments $ -- $ -- Revenues -- -- Net Income 501,852 250,928
In 1996, the Partnership liquidated its 50% interest in an entity which owned 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, 1997
5. Subsequent Event
With the disposal of the majority of the equipment portfolio, the Partnership's remaining assets were transferred into a liquidating trust as of January 1, 1998. The sole Beneficiaries of the liquidating trust are the limited partners and the General Partner. The Trustees, as designated by the General Partner, are three officers of the General Partner. The amounts reflected for assets and liabilities of the Partnership have not been adjusted to reflect liquidation values. The equipment portfolio that is actively being marketed for sale by the Trustees continues to be carried at the lower of depreciated cost or fair value less cost of disposal. Although the Trustees estimate that there will be distributions to the Beneficiaries after final disposal of assets and settlement of liabilities, the amounts cannot be accurately determined prior to actual disposal of the equipment. Cash receipts (including proceeds from the sale of assets) in excess of expected obligations and reasonable reserves will be distributed to the Beneficiaries in the liquidating trust from time to time, but not less often than annually. Upon final liquidation, the liquidating trust will be dissolved.
For tax purposes, the liquidating trust will continue be treated as a partnership under Internal Revenue Regulation Section 301.7701-3(b)(1)(i). Partnership tax returns will be filed until all the liquidating trust assets are distributed.
The Trustees have applied to the Securities and Exchange Commission (SEC) to terminate the Trust's obligation to file Form 10-Q and Form 10-K. If approved by the SEC, the Trustees will discontinue all future filings of these reports.
6. Special Distributions
The General Partner paid special distributions of $32.01, $25.52, and $11.34 per weighted-average limited partnership unit during 1997, 1996, and 1995, respectively.
7. 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, 1997, there were temporary differences of approximately $1.0 million between the financial statement carrying values of assets and liabilities and the federal income tax bases of such assets and liabilities. The differences were principally due to the differences in depreciation methods and the tax treatment of underwriting commissions and syndication costs.
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 more fully described in note 5.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PLM Transportation Equipment Partners IXC 1986 Income Fund as of December 31, 1997 and 1996 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles.
/S/ KPMG PEAT MARWICK LLP - ------------------------------------
SAN FRANCISCO, CALIFORNIA March 24, 1998
PLM TRANSPORTATION EQUIPMENT PARTNERS IXC 1986 INCOME FUND (A Limited Partnership) BALANCE SHEETS December 31,
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, 1997, 1996, and 1995
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, 1997
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 or PLM International) and manages the affairs of the Partnership.
The net income (loss) and distributions of the Partnership are generally 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.
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, 1997
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, 1997, 1996, or 1995.
Investments in Unconsolidated Special-Purpose Entity
The Partnership had an interest in an unconsolidated 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 1997, 1996, and 1995). The General Partner is generally allocated a 1% share of the net income (loss) and the limited partners are allocated a 99% share of the net income (loss). The General Partner received a special allocation of income in the amount of $85,400 in 1997. The Partnership agreement provides for a special allocation to occur near the dissolution of the Partnership. No special allocation was received in 1996 or 1995.
Cash distributions are recorded when paid. Cash distributions to investors in excess of net income are considered to represent a return of capital. Cash and special distributions to limited partners of $490,079, $503,698, and $640,950 in 1997, 1996, and 1995, 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.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXC 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1997
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, 1997 and 1996.
The Partnership reimbursed FSI and its affiliates $67,777, $96,914, and $163,169 for administrative and other services performed on behalf of the Partnership in 1997, 1996, and 1995, respectively. The Partnership's proportional share of USPE's administrative and other services was $1,468 during 1996. There were no administrative and other service expenses paid by the Partnership's proportional share of ownership in USPE in 1997.
As of December 31, 1997, all of the Partnership's trailer equipment had been transferred into rental facilities operated by an affiliate of the General Partner. Revenues 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 indirect expenses of the rental yard operations is charged to the Partnership monthly.
3. Equipment
The components of owned equipment at December 31, 1997 and 1996 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 were leased to the operator of utilization-type pools which included equipment owned by unaffiliated parties. In such instances revenues received by the Partnership consisted 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, 1997 and 1996.
During 1997, the Partnership sold or disposed of trailers and marine containers. During 1996, the Partnership sold or disposed of trailers, railcars, and a marine container.
All leases are being accounted for as operating leases with utilization-based rentals. Contingent rentals based upon utilization amounted to $3,248 in 1997, $5,579 in 1996, and $11,507 in 1995.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXC 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1997
3. Equipment (continued)
There were no lessees who accounted for 10% or more of total revenues during 1997, 1996, or 1995.
The Partnership owned certain equipment which was leased and operated internationally. A limited number of the Partnership's transactions were denominated in a foreign currency. Gains or losses resulting from foreign currency transactions are included in the results of operations and are not material.
The Partnership leases its trailers to lessees domiciled in United States as of December 31, 1997. The marine containers were leased to lessees in different regions who operated 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, 1997, 1996, and 1995:
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, 1997
3. Equipment (continued)
The net book value of these assets at December 31, 1997, 1996, and 1995 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.
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:
PLM TRANSPORTATION EQUIPMENT PARTNERS IXC 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1997
4. Investment in Unconsolidated Special-purpose Entity (continued)
In 1996, the Partnership liquidated its 30% interest in an entity which owned a commuter aircraft. The Partnership received liquidating distributions from the sale during the second quarter of 1996.
5. Subsequent Event
With the disposal of the majority of the equipment portfolio, the Partnership's remaining assets were transferred into a liquidating trust as of January 1, 1998. The sole Beneficiaries of the liquidating trust are the limited partners and the General Partner. The Trustees, as designated by the General Partner, are three officers of the General Partner. The amounts reflected for assets and liabilities of the Partnership have not been adjusted to reflect liquidation values. The equipment portfolio that is actively being marketed for sale by the Trustees continues to be carried at the lower of depreciated cost or fair value less cost of disposal. Although the Trustees estimate that there will be distributions to the Beneficiaries after final disposal of assets and settlement of liabilities, the amounts cannot be accurately determined prior to actual disposal of the equipment. Cash receipts (including proceeds from the sale of assets) in excess of expected obligations and reasonable reserves will be distributed to the Beneficiaries in the liquidating trust from time to time, but not less often than annually. Upon final liquidation, the liquidating trust will be dissolved.
For tax purposes, the liquidating trust will continue be treated as a partnership under Internal Revenue Regulation Section 301.7701-3(b)(1)(i). Partnership tax returns will be filed until all the liquidating trust assets are distributed.
The Trustees have applied to the Securities and Exchange Commission (SEC) to terminate the Trust's obligation to file Form 10-Q and Form 10-K. If approved by the SEC, the Trustees will discontinue all future filings of these reports.
6. Special Distributions
The General Partner paid special distributions of $27.35, $17.56, and $29.27 per weighted-average limited partnership unit during 1997, 1996, and 1995, respectively.
7. 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, 1997, there were temporary differences of approximately $0.9 million between the financial statement carrying values of assets and liabilities and the federal income tax bases of such assets and liabilities. The differences were principally due to the differences in depreciation methods and the tax treatment of underwriting commissions and syndication costs.
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 more fully described in note 5.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PLM Transportation Equipment Partners IXD 1986 Income Fund as of December 31, 1997 and 1996 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1997 in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP - ----------------------------------
SAN FRANCISCO, CALIFORNIA March 24, 1998
PLM TRANSPORTATION EQUIPMENT PARTNERS IXD 1986 INCOME FUND (A Limited Partnership) BALANCE SHEETS December 31,
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, 1997, 1996, and 1995
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, 1997
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 engages 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 or PLM International) and manages the affairs of the Partnership.
The net income (loss) and distributions of the Partnership are generally 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, manages pools of transportation equipment under agreements with these programs, and is a General Partner of other Limited partnerships.
Accounting for Leases
The Partnership's leasing operations generally consist of operating leases. Under the operating lease method of accounting, the leased asset is recorded at cost and depreciated over its estimated useful life. Rental payments are recorded as revenue over the lease term. Lease origination costs are capitalized and amortized over the term of the lease.
Depreciation
Depreciation is computed on the 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, 1997
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, 1997, 1996, or 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 1997, 1996 and 1995). The General Partner is generally allocated a 1% share of the net income (loss) and the limited partners are allocated a 99% share of the net income (loss). The General Partner received a special allocation of income in the amount of $48,127 in 1997. The Partnership agreement provides for a special allocation to occur near the dissolution of the Partnership. No special allocation was received in 1996 or 1995.
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 $125,706, $281,245, and $809,500 in 1997, 1996, and 1995, 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 $1,985 were payable to IMI as of December 31, 1997 and 1996.
The Partnership reimbursed FSI and its affiliates $14,528, $39,802, $68,871 for administrative and other services performed on behalf of the Partnership in 1997, 1996, and 1995, respectively.
As of December 31, 1997, all of the Partnership's trailer equipment had been transferred into rental facilities operated by an affiliate of the General Partner. Revenues 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
PLM TRANSPORTATION EQUIPMENT PARTNERS IXD 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS
2. General Partner and Transactions with Affiliates (continued)
the Partnership. An allocation of indirect expenses of the rental yard operations is charged to the Partnership monthly.
3. Equipment
The components of equipment at December 31, 1997 and 1996 are as follows:
Revenues are earned by placing the equipment under operating leases that are billed monthly or quarterly. The Partnership's marine containers were leased to the operator of utilization-type pools which included equipment owned by unaffiliated parties. In such instances revenues received by the Partnership consisted 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, 1997 and 1996. During 1997, the Partnership sold or disposed of marine containers and trailers with aggregate net book value of $80,484 for proceeds of $269,487. During 1996, the Partnership sold or disposed of marine containers and trailers with aggregate net book value of $37,577 for proceeds of $82,456.
The leases are being accounted for as operating leases with utilization-based rentals. Contingent rentals based upon utilization amounted to $36,908 in 1997, $50,335 in 1996, and $78,612 in 1995.
The only lessee accounting for 10% or more of the total revenues during 1997, 1996, or 1995 was Transamerica Leasing (44% in 1997, 33% in 1996, and 16% in 1995).
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, 1997, there were temporary differences of approximately $0.6 million between the financial statement carrying values of assets and liabilities and the federal income tax bases of such assets and liabilities. The differences were principally due to the differences in depreciation methods and the tax treatment of underwriting commissions and syndication costs.
PLM TRANSPORTATION EQUIPMENT PARTNERS IXD 1986 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1997
5. Subsequent Event
With the disposal of the majority of the equipment portfolio, the Partnership's remaining assets were transferred into a liquidating trust as of January 1, 1998. The sole Beneficiaries of the liquidating trust are the limited partners and the General Partner. The Trustees, as designated by the General Partner, are three officers of the General Partner. The amounts reflected for assets and liabilities of the Partnership have not been adjusted to reflect liquidation values. The equipment portfolio that is actively being marketed for sale by the Trustees continues to be carried at the lower of depreciated cost or fair value less cost of disposal. Although the Trustees estimate that there will be distributions to the Beneficiaries after final disposal of assets and settlement of liabilities, the amounts cannot be accurately determined prior to actual disposal of the equipment. Cash receipts (including proceeds from the sale of assets) in excess of expected obligations and reasonable reserves will be distributed to the Beneficiaries in the liquidating trust from time to time, but not less often than annually. Upon final liquidation, the liquidating trust will be dissolved.
For tax purposes, the liquidating trust will continue be treated as a partnership under Internal Revenue Regulation Section 301.7701-3(b)(1)(i). Partnership tax returns will be filed until all the liquidating trust assets are distributed.
The Trustees have applied to the Securities and Exchange Commission (SEC) to terminate the Trust's obligation to file Form 10-Q and Form 10-K. If approved by the SEC, the Trustees will discontinue all future filings of these reports.
6. Special Distributions
The General Partner paid special distributions of $20.00, $15.58, and $62.34 per weighted-average limited partnership unit during 1997, 1996, and 1995, respectively.
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 75-86
- -------- * Incorporated by reference. See page 27 of this report.