UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------ FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal quarter ended June 30, 1997. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number 0-14599 PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND (Exact name of registrant as specified in its charter) California 94-2946248 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Market, Steuart Street Tower, Suite 800, San Francisco, CA 94105-1301 (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code (415) 974-1399 --------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB INCOME FUND (A Limited Partnership) BALANCE SHEETS June 30, December 31, 1997 1996 ---------------------------------------- Assets: Equipment held for operating lease, at cost $ 2,251,186 $ 3,550,990 Less accumulated depreciation (2,237,991 ) (3,427,418) --------------------------------------- Net equipment 13,195 123,572 Cash and cash equivalents 293,238 269,628 Accounts receivable, net of allowance for doubtful accounts of $5,102 in 1997 and $5,082 in 1996 134,090 127,105 Prepaid insurance 1,044 2,714 --------------------------------------- Total assets $ 441,567 $ 523,019 ======================================= Liabilities and partners' capital: Liabilities: Accounts payable and accrued expenses $ 36,752 $ 32,221 Due to affiliate 4,641 4,641 Lessee deposits and engine reserves 9,500 615 --------------------------------------- Total liabilities 50,893 37,477 --------------------------------------- Partners' capital (deficit): Limited partners (22,276 units) 484,817 578,736 General Partner (94,143 ) (93,194 ) --------------------------------------- Total partners' capital 390,674 485,542 --------------------------------------- Total liabilities and partners' capital $ 441,567 $ 523,019 ======================================= See accompanying notes to financial statements. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND (A Limited Partnership) STATEMENTS OF INCOME For the Three Months For the Six Months Ended June 30, Ended June 30, 1997 1996 1997 1996 ---------------------------------------------------------------- Revenues: Lease revenue $ 84,522 $ 88,840 $ 183,005 $ 194,914 Interest income 4,101 2,635 7,629 6,088 Net gain on disposition of equipment 111,226 10,304 225,708 29,634 ---------------------------------------------------------------- Total revenues 199,849 101,779 416,342 230,636 ---------------------------------------------------------------- Expenses: Depreciation 14,551 53,112 38,061 107,881 Repairs and maintenance 28,739 22,939 44,989 45,201 Management fees to affiliate 13,922 13,922 27,845 25,436 Provision for (recovery of ) bad debt 6,336 (24,677 ) 6,230 (6,856 ) General and administrative expenses to affiliates 18,896 21,889 35,379 48,436 Other general and administrative expenses 20,402 14,641 36,525 26,983 ---------------------------------------------------------------- Total expenses 102,846 101,826 189,029 247,081 ---------------------------------------------------------------- Equity in net income of unconsolidated special-purpose entity -- 10,045 -- 19,376 ---------------------------------------------------------------- Net income $ 97,003 $ 9,998 $ 227,313 $ 2,931 ================================================================ Partners' share of net income: Limited partners - 99% $ 96,033 $ 9,898 $ 225,040 $ 2,902 General Partner - 1% 970 100 2,273 29 ---------------------------------------------------------------- Total $ 97,003 $ 9,998 $ 227,313 $ 2,931 ================================================================ Net income per weighted-average limited partnership unit (22,276 units) $ 4.31 $ 0.44 $ 10.10 $ 0.13 ================================================================ Cash distributions $ -- $ 99,046 $ 97,172 $ 198,092 ================================================================ Cash distribution per weighted-average limited partnership unit $ -- $ 4.40 $ 4.32 $ 8.80 ================================================================ Special cash distributions $ 225,009 $ 100,000 $ 225,009 $ 100,000 ================================================================ Special cash distributions per weighted-average limited partnership unit $ 10.00 $ 4.44 $ 10.00 $ 4.44 ================================================================ Total cash distributions per weighted-average limited partnership unit $ 10.00 $ 8.84 $ 14.32 $ 13.24 ================================================================ See accompanying notes to financial statements. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB INCOME FUND (A Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the period from December 31, 1995 to June 30, 1997 Limited General Partners Partner Total ------------------------------------------------------------- Partners' capital (deficit) at December 31, 1995 $ 931,401 $ (89,632 ) $ 841,769 Net income 235,702 2,381 238,083 Cash distributions (390,367 ) (3,943 ) (394,310 ) Special distributions (198,000 ) (2,000 ) (200,000 ) -------------------------------------------------------------- Partners' capital (deficit) at December 31, 1996 578,736 (93,194 ) 485,542 Net income 225,040 2,273 227,313 Cash distributions (96,200 ) (972 ) (97,172 ) Special distributions (222,759 ) (2,250 ) (225,009 ) -------------------------------------------------------------- Partners' capital (deficit) at June 30, 1997 $ 484,817 $ (94,143 ) $ 390,674 ============================================================== See accompanying notes to financial statements. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND (A Limited Partnership) STATEMENT OF CASH FLOWS For the Six Months ended June 30, 1997 1996 ------------------------------------- Operating activities: Net income $ 227,313 $ 2,931 Adjustments to reconcile net income to net cash provided by operating activities: Net gain on disposition of equipment (225,708 ) (29,634 ) Depreciation 38,061 107,881 Equity in net income from unconsolidated special-purpose entity -- (19,376 ) Changes in operating assets and liabilities: Accounts receivable, net (6,985 ) 28,801 Prepaid insurance 1,670 2,010 Accounts payable and accrued expenses 4,531 (2,768 ) Lessee deposits and engine reserves 8,885 (260 ) ------------------------------------- Net cash provided by operating activities 47,767 89,585 ------------------------------------- Investing activities: Distributions from unconsolidated special-purpose entity -- 51,539 Proceeds from disposition of equipment 298,024 48,577 ------------------------------------- Net cash provided by investing activities 298,024 100,116 ------------------------------------- Financing activities: Cash distributions paid to limited partners (318,959 ) (295,111 ) Cash distributions paid to General Partner (3,222 ) (2,981 ) ------------------------------------- Net cash used in financing activities (322,181 ) (298,092 ) ------------------------------------- Net increase (decrease) in cash and cash equivalents 23,610 (108,391 ) Cash and cash equivalents at beginning of period 269,628 293,808 ------------------------------------- Cash and cash equivalents at end of period $ 293,238 $ 185,417 ===================================== See accompanying notes to financial statements. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 1997 1. Opinion of Management In the opinion of the management of PLM Financial Services Inc., the General Partner, the accompanying unaudited financial statements contain all adjustments necessary, consisting primarily of normal recurring accruals, to present fairly the financial position of PLM Transportation Equipment Partners VIIB 1985 Income Fund (the Partnership) as of June 30, 1997 and December 31, 1996, the statements of income for the three and six months ended June 30, 1997 and 1996, the statements of changes in partners' capital for the period from December 31, 1995 to June 30, 1997, and the statements of cash flows for the six months ended June 30, 1997 and 1996. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from the accompanying financial statements. For further information, reference should be made to the financial statements and notes thereto included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1996, on file at the Securities and Exchange Commission. 2. Reclassifications Certain amounts in the 1996 financial statements have been reclassified to conform to the 1997 presentation. 3. Equipment The components of owned equipment are as follows: June 30, December 31, 1997 1996 -------------------------------------- Equipment held for operating lease: Trailers $ 2,175,130 $ 3,146,140 Marine containers 76,056 86,201 Rail equipment -- 318,649 -------------------------------------- 2,251,186 3,550,990 Less accumulated depreciation (2,237,991 ) (3,427,418 ) -------------------------------------- Net equipment $ 13,195 $ 123,572 ====================================== All of the equipment owned by the Partnership was either on lease or operating in PLM-affiliated short-term rental facilities at June 30, 1997 and December 31, 1996. During the six months ended June 30, 1997, the Partnership sold or disposed of railcars, trailers and marine containers with an aggregate net book value of $72,316 for proceeds of $298,024. During the six months ended June 30, 1996, the Partnership sold or disposed of trailers and marine containers with an aggregate net book value of $18,943 for aggregate proceeds of $48,577. 4. Liquidation and Special Distributions The Partnership is in its liquidation phase. The General Partner is actively marketing the remaining equipment portfolio with the intent of maximizing sale proceeds. As sale proceeds are received the General Partner intends to periodically declare special distributions to distribute the sale proceeds to PLM TRANSPORTATION EQUIPMENT PARTNERS VIIB 1985 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 1997 4. Liquidation and Special Distributions (continued) the partners. During the liquidation phase of the Partnership, the equipment will continue to be leased under operating leases until sold. Operating cash flows, to the extent they exceed Partnership expenses, will continue to be distributed on a quarterly basis to the partners. The amounts reflected for assets and liabilities of Partership have not been adjusted to reflect liquidation values. The equipment portfolio continues to be carried at the lower of depreciated cost or fair value less cost to dispose. Although the General Partner estimates that there will be distributions after liquidation of assets and liabilities, the amounts cannot be accurately determined prior to actual liquidation of the equipment. Any excess proceeds over expected Partnership obligations will be distributed to the Partners throughout the liquidation period. Upon final liquidation, the Partnership will be dissolved. During the six months ended June 30, 1997 and 1996, the General Partner paid special distributions of $10.00 and $4.44, respectively, per weighted-average limited partnership unit which were the result of proceeds from the sale of equipment. During the liquidation phase, the Partnership is not permitted to reinvest proceeds from sales or liquidations of equipment. These proceeds, in excess of operational cash requirements, are periodically paid out to partners in the form of special distributions. The sales and liquidations occur because of equipment destructions, the determination by the General Partner that it is the appropriate time to maximize the return on an asset through the sale of that asset, and, in some leases, the ability of the lessee to exercise purchase options. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND (A Limited Partnership) BALANCE SHEETS June 30, December 31, 1997 1996 --------------------------------------- Assets: Equipment held for operating lease, at cost $ 2,327,317 $ 4,069,971 Less accumulated depreciation (2,272,778 ) (3,861,489 ) --------------------------------------- Net equipment 54,539 208,482 Cash and cash equivalents 476,043 416,360 Investments in unconsolidated special-purpose entity 45,984 99,974 Accounts receivable, net of allowance for doubtful accounts of $4,945 in 1997 and $633 in 1996 45,343 64,261 Prepaid insurance 1,346 3,713 --------------------------------------- Total assets $ 623,255 $ 792,790 ======================================= Liabilities and partners' capital: Liabilities: Accounts payable and accrued expenses $ 8,717 $ 13,040 Due to affiliate 7,026 7,026 --------------------------------------- Total liabilities 15,743 20,066 --------------------------------------- Partners' capital (deficit): Limited partners (33,727 units) 749,940 913,500 General Partner (142,428 ) (140,776 ) --------------------------------------- Total partners' capital 607,512 772,724 --------------------------------------- Total liabilities and partners' capital $ 623,255 $ 792,790 ======================================= See accompanying notes to financial statements. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND (A Limited Partnership) STATEMENTS OF INCOME For the three months For the six months ended June 30, ended June 30, 1997 1996 1997 1996 ------------------------------------------------------------- Revenues: Lease revenue $ 54,668 $ 110,557 $ 126,863 219,749 Interest income 4,846 4,359 9,164 10,822 Net gain on disposition of equipment 211,449 20,189 252,407 54,634 ------------------------------------------------------------- Total revenues 270,963 135,105 388,434 285,205 ------------------------------------------------------------- Expenses: Depreciation 35,994 62,867 91,076 129,371 Repairs and maintenance 14,160 23,225 28,986 46,936 Management fees to affiliate 21,079 22,525 42,159 37,823 General and administrative expenses to affiliates 14,743 29,951 38,049 67,082 Other general and administrative expenses 18,322 17,069 32,492 36,816 ------------------------------------------------------------- Total expenses 104,298 155,637 232,762 318,028 ------------------------------------------------------------- Equity in net income of unconsolidated special-purpose entities 12,154 33,867 25,110 70,844 ------------------------------------------------------------- Net income $ 178,819 $ 13,335 $ 180,782 38,021 ============================================================= Partners' share of net income: Limited partners - 99% $ 177,031 $ 13,202 $ 178,974 37,641 General Partner - 1% 1,788 133 1,808 380 ============================================================= Total $ 178,819 $ 13,335 $ 180,782 38,021 ============================================================= Net income per weighted-average limited partnership unit (33,727 units) $ 5.25 $ 0.39 $ 5.31 1.12 ============================================================= Cash distributions $ -- $ 159,314 $ 75,660 319,631 ============================================================= Cash distribution per weighted-average limited partnership unit $ -- $ 4.68 $ 2.22 9.38 ============================================================= Special cash distributions $ 170,334 $ 250,000 $ 270,334 350,000 ============================================================= Special cash distributions per weighted-average limited partnership unit $ 5.00 $ 7.34 $ 7.94 10.27 ============================================================= Total cash distributions per weighted-average limited partnership units $ 5.00 $ 12.02 $ 10.16 19.65 ============================================================= See accompanying notes to financial statements. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC INCOME FUND (A Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the period from December 31, 1995 to June 30, 1997 Limited General Partners Partner Total ---------------------------------------------------------------- Partners' capital (deficit) at December 31, 1995 $ 1,758,377 $ (132,241 ) $ 1,626,136 Net income 594,935 6,009 600,944 Cash distributions (647,812 ) (6,544 ) (654,356 ) Special distributions (792,000 ) (8,000 ) (800,000 ) ---------------------------------------------------------------- Partners' capital (deficit) at December 31, 1996 913,500 (140,776 ) 772,724 Net income 178,974 1,808 180,782 Cash distributions (74,903 ) (757 ) (75,660 ) Special distributions (267,631 ) (2,703 ) (270,334 ) ---------------------------------------------------------------- Partners' capital (deficit) at June 30, 1997 $ 749,940 $ (142,428 ) $ 607,512 ================================================================ See accompanying notes to financial statements. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND (A Limited Partnership) STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 1997 1996 -------------------------------------- Operating activities: Net income $ 180,782 $ 38,021 Adjustments to reconcile net income to net cash provided by operating activities: Net gain on disposition of equipment (252,407 ) (54,634 ) Depreciation 91,076 129,371 Equity in net income from unconsolidated special-purpose entities (25,110 ) (70,844 ) Changes in operating assets and liabilities: Accounts receivable, net 18,918 55,484 Prepaid insurance 2,367 3,925 Accounts payable and accrued expenses (4,323 ) (6,105 ) ------------------------------------- Net cash provided by operating activities 11,303 95,218 ------------------------------------- Investing activities: Payment for capitalized repairs (1,435 ) -- Distributions from unconsolidated special-purpose entities 79,100 184,540 Proceeds from disposition of equipment 316,709 101,238 ------------------------------------- Net cash provided by investing activities 394,374 285,778 ------------------------------------- Financing activities: Cash distributions paid to limited partners (342,534 ) (662,935 ) Cash distributions paid to General Partner (3,460 ) (6,696 ) ------------------------------------- Net cash used in financing activities (345,994 ) (669,631 ) ------------------------------------- Net increase (decrease) in cash and cash equivalents 59,683 (288,635 ) Cash and cash equivalents at beginning of period 416,360 551,094 ------------------------------------- Cash and cash equivalents at end of period $ 476,043 $ 262,459 ===================================== See accompanying notes to financial statements. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 1997 1. Opinion of Management In the opinion of the management of PLM Financial Services Inc., the General Partner, the accompanying unaudited financial statements contain all adjustments necessary, consisting primarily of normal recurring accruals, to present fairly the financial position of PLM Transportation Equipment Partners VIIC 1985 Income Fund (the Partnership) as of June 30, 1997 and December 31, 1996, the statements of income for the three and six months ended June 30, 1997 and 1996, the statements of changes in partners' capital for the period from December 31, 1995 to June 30, 1997, and the statements of cash flows for the six months ended June 30, 1997 and 1996. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from the accompanying financial statements. For further information, reference should be made to the financial statements and notes thereto included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1996, on file at the Securities and Exchange Commission. 2. Reclassifications Certain amounts in the 1996 financial statements have been reclassified to conform to the 1997 presentation. 3. Equipment The components of owned equipment are as follows: June 30, December 31, 1997 1996 --------------------------------------- Equipment held for operating lease: Trailers $ 2,176,082 $ 3,870,247 Marine containers 151,235 199,724 --------------------------------------- 2,327,317 4,069,971 Less accumulated depreciation (2,272,778 ) (3,861,489 ) ======================================= Net equipment $ 54,539 $ 208,482 ======================================= All of the equipment owned by the Partnership was either on lease or operating in PLM-affiliated short-term rental facilities at June 30, 1997 and December 31, 1996. During the six months ended June 30, 1997, the Partnership sold or disposed of marine containers and trailers with a net book value of $64,302 for proceeds of $316,709. During the six months ended June 30, 1996, the Partnership sold or disposed of marine containers and trailers with a net book value of $46,604 for proceeds of $101,238. 4. Liquidation and Special Distributions The Partnership is in its liquidation phase. The General Partner is actively marketing the remaining equipment portfolio with the intent of maximizing sale proceeds. As sale proceeds are received the General Partner intends to periodically declare special distributions to distribute the sale proceeds to PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 1997 4. Liquidation and Special Distributions (continued) the partners. During the liquidation phase of the Partnership the equipment will continue to be leased under operating leases until sold. Operating cash flows, to the extent they exceed Partnership expenses, will continue to be distributed on a quarterly basis to the partners. The amounts reflected for assets and liabilities of the Partnership have not been adjusted to reflect liquidation values. The equipment portfolio continues to be carried at the lower of depreciated cost or fair value less cost to dispose. Although the General Partner estimates that there will be distributions after liquidation of assets and liabilities, the amounts cannot be accurately determined prior to actual liquidation of the equipment. Any excess proceeds over expected Partnership obligations will be distributed to the Partners throughout the liquidation period. Upon final liquidation, the Partnership will be dissolved. During the six months ended June 30, 1997, and 1996, the General Partner paid special distributions of $7.94 and $10.27, respectively, per weighted-average limited partnership unit which were the result of proceeds from the sale of equipment. During the liquidation phase, the Partnership is not permitted to reinvest proceeds from sales or liquidations of equipment. These proceeds, in excess of operational cash requirements, are periodically paid out to partners in the form of special distributions. The sales and liquidations occur because of equipment destructions, the determination by the General Partner that it is the appropriate time to maximize the return on an asset through sale of that asset, and, in some leases, the ability of the lessee to exercise purchase options. 5. Investments in Unconsolidated Special-Purpose Entity The net investment in an unconsolidated special-purpose entity included a 80% interest in a commuter aircraft at June 30, 1997. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (I) RESULTS OF OPERATIONS Comparison of the Partnerships' Operating Results for the Three Months Ended June 30, 1997 and 1996 TEP VIIB: (A) Owned Equipment Operations Lease revenues less direct expenses (defined as repairs and maintenance and asset specific insurance expenses) on owned equipment decreased for the quarter ended June 30, 1997 when compared to the same period of 1996. The following table presents lease revenues less direct expenses by owned equipment type: For the Three Months Ended June 30, 1997 1996 --------------------------------- Trailers $ 52,697 $ 55,587 Marine containers 2,372 2,540 Railcar equipment 30 7,181 Trailers: Trailer lease revenues and direct expenses were $82,045 and $29,348, respectively, for the quarter ended June 30, 1997, compared to $78,770 and $23,183, respectively, during the same period of 1996. The decrease in contribution was due to higher repairs and maintenance expense for the three months ended June 30, 1997 when compared to the same period of 1996. Marine containers: Marine container lease revenues and direct expenses were $2,388 and $16, respectively, for the quarter ended June 30, 1997, compared to $2,570 and $30, respectively, during the same period of 1996. The number of marine containers owned by the Partnership declined over the past twelve months due to sales and dispositions. In addition, the marine container fleet experienced lower utilization, resulting in a decrease in marine container contribution. Railcar equipment: Railcar lease revenues and direct expenses were $89 and $59, respectively, for quarter ended June 30, 1997, compared to $7,500 and $319, respectively, during the same period of 1996. The decrease in railcar contribution resulted from the sale of all the Partnership's railcars during the first quarter of 1997. (B) Indirect Expenses Related to Owned Equipment Operations Total indirect expenses of $73,423 for the quarter ended June 30, 1997, decreased from $78,294 for the same period in 1996. The variances are explained as follows: (1) a $38,561 decrease in depreciation expense reflecting the sale of equipment during 1997 and 1996. (2) a $31,013 increase in bad debt expense was due to the General Partner's evaluation of the collectibility of trade receivables. (3) a $2,677 increase in general and administrative expenses was due to increased license fee due to renewal of trailers licenses, partially offset by decreased administrative costs associated with the short-term rental facilities. (C) Net Gain on Disposition of Owned Equipment For the quarter ended June 30, 1997, the Partnership realized a gain of $111,226 on the sale or disposition of marine containers and trailers, compared to the same period in 1996 when the Partnership realized a gain of $10,304 on the sale or disposition of trailers and a marine container. (D) Equity in Net Income of Unconsolidated Special-Purpose Entity Equity in the net income of the unconsolidated special-purpose entity was $10,045 for the quarter ended June 30, 1996, and represents the Partnership's share of income generated from the partnership's investment in an entity which owned an aircraft, accounted for under the equity method. This investment was sold in the third quarter of 1996. (E) Net Income The Partnership's net income of $97,003 in the second quarter of 1997 increased from $9,998 in the second quarter of 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 in the second quarter of 1997 is not necessarily indicative of future periods. In the second quarter of 1997, the Partnership made a special distribution of $222,759 to the limited partners, or $10.00 per weighted-average limited partnership unit. TEP VIIC: (A) Owned Equipment Operations Lease revenues less direct expenses (defined as repairs and maintenance and asset specific insurance expenses) on owned equipment decreased for the quarter ended June 30, 1997 when compared to the same period of 1996. The following table presents lease revenues less direct expenses by owned equipment type: For the Three Months Ended June 30, 1997 1996 --------------------------------- Trailers $ 37,189 $ 84,541 Marine containers 2,508 1,876 Trailers: Trailer lease revenues and direct expenses were $52,122 and $14,933, respectively, for the quarter ended June 30, 1997, compared to $108,630 and $24,089, respectively during the same period during 1996. The decrease in contribution was due to lower utilization of trailers and the disposition of equipment during 1997 and 1996. Marine containers: Marine container lease revenues and direct expenses were $2,546 and $38, respectively, for the quarter ended June 30, 1997, compared to $1,927 and $51, respectively during the same period during 1996. (B) Indirect Expenses Related to Owned Equipment Operations Total indirect expenses of $89,327 for the quarter ended June 30, 1997, decreased from $131,497 for the same period in 1996. The variances are explained as follows: (1) a $26,873 decrease in depreciation expenses reflecting the sale of equipment during 1997 and 1996. (2) a $14,639 decrease in the general and administrative expenses due to decreased administrative costs associated with the short-term rental facilities due to sale of equipment. (C) Net Gain on Disposition of Owned Equipment For the quarter ended June 30, 1997, the Partnership realized a gain of $211,449 on the sale or disposition of trailers and marine containers, compared to the same period in 1996, when the Partnership realized a gain of $20,189 on the sale or disposition of trailers. (D) Equity in Net Income of Unconsolidated Special-Purpose Entities Equity in net income of unconsolidated special-purpose entities of $12,154 and $33,867 for the quarter ended June 30, 1997 and June 30, 1996, respectively, represents the Partnership's share of income generated from the partnership investment in entities which own aircraft, accounted for under the equity method. The decrease is due to the Partnership liquidating its 69% investment in an aircraft as a result of the General Partner's sale of the asset during 1996. (E) Net Income The Partnership's net income increased to $178,819 in the second quarter of 1997, from $13,335 in the second quarter of 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 in the second quarter of 1997 is not necessarily indicative of future periods. In the second quarter of 1997, the Partnership made a special distribution of $168,631 to the limited partners, or $5.00 per weighted-average limited partnership unit. Comparison of the Partnerships' Operating Results for the Six Months Ended June 30, 1997 and 1996 TEP VIIB: (A) Owned Equipment Operations Lease revenues less direct expenses (defined as repairs and maintenance and asset specific insurance expenses) on owned equipment decreased during the first six months of 1997 when compared to the same period of 1996. The following table presents lease revenues less direct expenses by owned equipment type: For the six months ended June 30, 1997 1996 --------------------------------- Trailers $ 129,266 $ 126,112 Marine containers 3,716 7,777 Railcar equipment 3,595 14,636 Trailers: Trailer lease revenues and direct expenses were $175,505 and $46,239, respectively, for the six months ended June 30, 1997, compared to $172,077 and $45,965, respectively, during the same period of 1996. The increase of net contribution was due to higher lease rates of trailers in the short-term rental facilities in the first six months of 1997 when compared to the same period of 1996. The increase was partially offset by the disposition of trailers and lower utilization. Marine containers: Marine container lease revenues and direct expenses were $3,750 and $34, respectively, for the six months ended 1997, compared to $7,837 and $60, respectively, during the same period of 1996. The number of marine containers owned by the Partnership declined over the past twelve months due to sales and dispositions. In addition, the marine container fleet experienced lower utilization, resulting in a decrease in marine container contribution. Railcar equipment: Railcar lease revenues and direct expenses were $3,750 and $155, respectively, for the six months ended June 30, 1997, compared to $15,000 and $364, respectively, during the same period of 1996. The decrease in railcar contribution resulted from the sale of all the Partnership's railcars during the first quarter of 1997. (B) Indirect Expenses Related to Owned Equipment Operations Total indirect expenses of $142,601 for the six months ended June 30, 1997, decreased from $200,692 for the same period in 1996. The variances are explained as follows: (1) a $69,820 decrease in depreciation expense from 1996 levels reflecting the sale of equipment during 1997 and 1996. (2) a decrease of general and administrative expenses of $3,766 from 1996 levels was due to decreased administrative costs associated with the short-term rental facilities, partially offset by increased license fee due to renewal of trailers licenses. (3) an increase of bad debt expense of $13,086 was due to the General Partner's evaluation of the collectibility of trade receivables. (C) Net Gain on Disposition of Owned Equipment For the six months ended June 30, 1997, the Partnership realized a gain of $225,708 on the sale or disposition of railcars, marine containers and trailers, compared to the same period in 1996 where the Partnership realized a gain of $29,634 on the sale or disposition of marine containers and trailers. (D) Equity in Net Income of Unconsolidated Special-Purpose Entity Equity in the net income of the unconsolidated special-purpose entity was $19,376 for the six months ended June 30, 1996, and represents the Partnership's share of income generated from the partnership's investment in an entity which owned an aircraft, accounted for under the equity method. This investment was sold in the third quarter of 1996. (E) Net Income The Partnership's net income of $227,313 in the six months ended June 30, 1997, increased from $2,931 in the first six months of 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 in the first six months of 1997 is not necessarily indicative of future periods. For the six months ended June 30, 1997, the Partnership distributed $318,959 to the limited partners, or $14.32 per weighted-average limited partnership unit which included a special distribution of $10.00 per weighted-average limited partnership unit. TEP VIIC: (A) Owned Equipment Operations Lease revenues less direct expenses (defined as repairs and maintenance and asset specific insurance expenses) on owned equipment decreased during the first six months of 1997 when compared to the same period of 1996. The following table presents lease revenues less direct expenses by owned equipment type: For the six months ended June 30, 1997 1996 --------------------------------- Trailers $ 92,375 $ 167,681 Marine containers 3,806 3,114 Trailers: Trailer lease revenues and direct expenses were $122,977 and $30,602, respectively, for the six months ended 1997, compared to $216,522 and $48,841, respectively during the same quarter of 1996. The decrease in net contribution was due to lower utilization of trailers in the short-term rental facilities in the first six months of 1997 when compared to the same period of 1996, and the disposition of trailers. Marine containers: Marine container lease revenues and direct expenses were $3,886 and $80, respectively, for the six months ended 1997, compared to $3,227 and $113, respectively during the same period of 1996. (B) Indirect Expenses Related to Owned Equipment Operations Total indirect expenses of $202,080 for the six months ended June 30, 1997, decreased from $269,073 for the same period in 1996. The variances are explained as follows: (1) a $38,295 decrease in depreciation and amortization expenses from 1996 levels reflecting the sale of equipment during 1997 and 1996. (2) a $33,395 decrease in the general and administrative expenses from 1996 levels was due to decreased administrative costs associated with the short-term rental facilities. (3) a $4,336 increase in management fee due to higher levels of operating cash flow during the comparable periods. Monthly management fees are calculated as the greater of 10% of the Partnership's Operating Cash Flow, or 1/12 of 1/2% of the Partnership's Capital Contributions as defined in the Limited Partnership Agreement. (C) Net Gain on Disposition of Owned Equipment For the six months ended June 30, 1997, the Partnership realized a gain of $252,407 on the sale or disposition of trailers and marine containers, compared to the same period in 1996, where the Partnership realized a gain of $54,634 on the sale or disposition of trailers and marine containers. (D) Equity in Net Income of Unconsolidated Special-purpose Entities Equity in net income of unconsolidated special-purpose entities of $25,110 and $70,844 for the six months ended June 30, 1997 and June 30, 1996, respectively, represents the Partnership's share of income generated from the partnership investment in entities which own aircraft, accounted for under the equity method. The decrease is due to the Partnership liquidating its 69% investment in an aircraft as a result of the General Partner's sale of the asset during 1996. (E) Net Income The Partnership's net income increased to $180,782 for the six months ended June 30, 1997, from $38,021 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 in the six months ended June 30, 1997 is not necessarily indicative of future periods. For the six months ended June 30, 1997, the Partnership distributed $342,534 to the limited partners, or $10.16 per weighted-average limited partnership unit which included a special distribution of $7.94 per weighted-average limited partnership unit. (II) ASSET SALES The General Partner is actively marketing the remaining equipment portfolio with the intent of maximizing sale proceeds. As discussed in Note 4, the Partnerships entered the liquidation phase in 1995. During the six months ended June 30, 1997, TEP VIIB sold or disposed of railcars, trailers and marine containers for $298,024, and TEP VIIC sold or disposed of trailers and marine containers for $316,709. (III) MARKET VALUES As of June 30, 1997, the General Partner estimated the fair market value of each Partnerships' equipment portfolio to be approximately: $0.5 million and $1.2 million for TEP VIIB and TEP VIIC respectively. (IV) OUTLOOK FOR THE FUTURE Pursuant to the original operating plan, the Partnerships entered into their liquidation phase in 1995 and the General Partner is actively pursuing the sale of all of the Partnerships' equipment with the intention of winding up the Partnerships and distributing all available cash to the Partners. (V) FORWARD LOOKING INFORMATION Except for historical information contained herein, the discussion in this Form 10-Q contains forward-looking statements that involve risks and uncertainties, such as statements of the Partnership's plans, objectives, expectations, and intentions. The cautionary statements made in this Form 10-Q should be read as being applicable to all related forward-looking statements wherever they appear in this Form 10-Q. The Partnership's actual results could differ materially from those discussed here. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None. (b) Reports on Form 8-K None. Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PLM TRANSPORTATION EQUIPMENT PARTNERS VIIC 1985 INCOME FUND By: PLM Financial Services, Inc. General Partner Date: August 7, 1997 By: /s/ Richard Brock ----------------- Richard Brock Vice President and Corporate Controller