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 September 30, 1998
[ ] 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 33-27746
-----------------------
PLM EQUIPMENT GROWTH FUND IV
(Exact name of registrant as specified in its charter)
California 94-3090127
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Indentification 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
<PAGE>
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
BALANCE SHEETS
(in thousands of dollars, except unit amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---------------------------------------
<S> <C> <C>
Assets
Equipment held for operating lease, at cost $ 82,690 $ 87,520
Less accumulated depreciation (57,586 ) (56,215)
---------------------------------------
Net equipment 25,104 31,305
Cash and cash equivalents 1,144 3,650
Restricted cash 247 247
Accounts receivable, less allowance for doubtful
accounts of $3,327 in 1998 and $3,332 in 1997 912 954
Investments in unconsolidated special-purpose entities 5,879 9,756
Deferred charges, less accumulated amortization
of $363 in 1998 and $486 in 1997 71 119
Prepaid expenses and other assets 12 58
---------------------------------------
Total assets $ 33,369 $ 46,089
=======================================
Liabilities and partners' capital
Liabilities:
Accounts payable and accrued expenses $ 732 $ 1,511
Due to affiliates 239 256
Lessee deposits and reserve for repairs 1,707 2,095
Notes payable 12,750 21,000
---------------------------------------
Total liabilities 15,428 24,862
---------------------------------------
Partners' capital:
Limited partners (8,628,420 limited partnership units
as of September 30, 1998 and December 31, 1997) 17,941 21,227
General Partner -- --
---------------------------------------
Total partners' capital 17,941 21,227
---------------------------------------
Total liabilities and partners' capital $ 33,369 $ 46,089
=======================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
STATEMENTS OF OPERATIONS
(in thousands of dollars, except weighted-average unit amounts)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
----------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Lease revenue $ 2,662 $ 3,019 $ 8,380 $ 9,827
Interest and other income 17 52 204 769
Net gain (loss) on disposition of equipment (13 ) 16 (495) 2,370
---------------------------------------------------------------
Total revenues 2,666 3,087 8,089 12,966
---------------------------------------------------------------
Expenses
Depreciation and amortization 1,430 1,869 4,396 5,437
Equipment operating expense 155 210 600 560
Repairs and maintenance 284 554 1,133 1,234
Interest expense 311 512 1,335 1,938
Insurance expense to affiliates -- 4 (55) 53
Other insurance expense 58 85 222 281
Management fees to affiliate 151 149 466 517
General and administrative expenses
to affiliates 118 138 421 495
Other general and administrative expenses 182 422 417 1,307
Provision for (recovery of) bad debt expense (30 ) 531 154 387
---------------------------------------------------------------
Total expenses 2,659 4,474 9,089 12,209
---------------------------------------------------------------
Equity in net income (loss) of unconsolidated special-
purpose entities 46 (133) 338 (257)
---------------------------------------------------------------
Net income (loss) $ 53 $ (1,520) $ (662) $ 500
===============================================================
Partners' share of net income (loss)
Limited partners $ 8 $ (1,588) $ (798) $ 250
General Partner 45 68 136 250
---------------------------------------------------------------
Total $ 53 $ (1,520) $ (662) $ 500
===============================================================
Net income (loss) per weighted-average limited
partnership unit $ 0.00 $ (0.18) $ (0.09) $ 0.03
===============================================================
Cash distributions $ 808 $ 1,300 $ 2,624 $ 4,934
===============================================================
Cash distributions per weighted-average limited
partnership unit $ 0.09 $ 0.14 $ 0.29 $ 0.54
===============================================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the period from December 31, 1996 to September
30, 1998
(in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
---------------------------------------------------------
<S> <C> <C> <C>
Partners' capital as of December 31, 1996 $ 24,909 $ -- $ 24,909
Net income 1,803 295 2,098
Cash distributions (5,485 ) (295 ) (5,780 )
Partners' capital as of December 31, 1997 21,227 -- 21,227
Net income (loss) (798 ) 136 (662 )
Cash distributions (2,488 ) (136 ) (2,624 )
---------------------------------------------------------
Partners' capital as of September 30, 1998 $ 17,941 $ -- $ 17,941
=========================================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
For the nine months ended September 30,
(in thousands of dollars)
<TABLE>
<CAPTION>
1998 1997
------------------------------------
<S> <C> <C>
Operating activities
Net income (loss) $ (662) $ 500
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 4,396 5,437
Net (gain) loss on disposition of equipment 495 (2,370)
Equity in net (income) loss of unconsolidated special-
purpose entities (338) 257
Changes in operating assets and liabilities:
Due from affiliates -- 357
Accounts and notes receivable, net 83 (58)
Prepaid expenses and other assets 46 129
Accounts payable and accrued expenses (779) (583)
Due to affiliates (17) (20)
Lessee deposits and reserve for repairs (388) 355
-------------------
-------------------
Net cash provided by operating activities 2,836 4,004
------------------------------------
Investing activities
Payments for capital repairs (7) (3)
Liquidation proceeds from unconsolidated
special-purpose entities 3,470 --
Proceeds from disposition of equipment 1,324 7,166
Distributions from unconsolidated special-purpose entities 745 626
------------------------------------
Net cash provided by investing activities 5,532 7,789
------------------------------------
Financing activities
Principal payments of notes payable (8,250) (8,250)
Cash distributions paid to limited partners (2,488) (4,684)
Cash distributions paid to General Partner (136) (250)
------------------------------------
Net cash used in financing activities (10,874) (13,184)
------------------------------------
Net decrease in cash and cash equivalents (2,506) (1,391)
Cash and cash equivalents at beginning of period 3,650 2,142
------------------------------------
Cash and cash equivalents at end of period $ 1,144 $ 751
====================================
Supplemental information
Interest paid $ 1,335 $ 1,938
====================================
Sale proceeds included in accounts receivable $ 41 $ 16
====================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
1. Opinion of Management
In the opinion of the management of PLM Financial Services, Inc. (FSI or
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 Equipment Growth
Fund IV (the Partnership) as of September 30, 1998 and December 31, 1997,
the statements of operations for the three and nine months ended September
30, 1998 and 1997, the statements of changes in partners' capital for the
period from December 31, 1996 to September 30, 1998, and the statements of
cash flows for the nine months ended September 30, 1998 and 1997. Certain
information and note 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, 1997, on file with the Securities and
Exchange Commission.
2. Cash Distributions
Cash distributions are recorded when paid and totaled $2.6 million and $4.9
million for the nine months ended September 30, 1998 and 1997,
respectively, and $0.8 million and $1.3 million for the three months ended
September 30, 1998 and 1997, respectively. Cash distributions to limited
partners in excess of net income are deemed to be a return of capital. Cash
distributions to limited partners of $2.5 million and $4.4 for the nine
months ended September 30, 1998 and 1997, respectively, were deemed to be a
return of capital. Cash distributions related to the results from the third
quarter of 1998, of $0.7 million, will be paid during the fourth quarter of
1998.
Transactions with General Partner and Affiliates
The balance due to affiliates as of September 30, 1998 and December 31,
1997, includes $0.1 million due to FSI and its affiliate for management
fees and $0.1 million due to affiliated unconsolidated special-purpose
entities (USPEs). The Partnership's proportional share of management fees
with USPE's of $11,000 were payable as of September 30, 1998 and December
31, 1997, respectively.
The Partnership's proportional share of the affiliated expenses incurred by
the USPEs during 1998 and 1997 is listed in the following table (in
thousands of dollars):
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees $ 18 $ 24 $ 61 $ 66
Data processing and administrative
expenses 4 7 15 23
Insurance expense 2 15 9 64
</TABLE>
Transportation Equipment Indemnity Company, Ltd. (TEI), an affiliate of the
General Partner, provides marine insurance coverage for the Partnership's
investment in USPEs and other insurance brokerage services. TEI did not
provide the same insurance coverage during 1998 as had been provided during
1997. These services were provided by an unaffiliated third party.
<PAGE>
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
Transactions with General Partner and Affiliates (continued)
During 1998, the Partnership received a $0.1 million loss-of-hire insurance
refund from TEI due to lower claims from the insured Partnership and other
insured affiliated partnerships.
4. Equipment
The components of owned equipment held for operating lease are as follows
(in thousands of dollars):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------------------------------------------
<S> <C> <C>
Aircraft $ 42,734 $ 42,734
Rail equipment 14,780 14,828
Marine containers 11,287 13,384
Marine vessel 9,719 9,719
Trailers 4,170 6,855
-------------------------------------------
82,690 87,520
Less accumulated depreciation (57,586 ) (56,215)
-------------------------------------------
Net equipment $ 25,104 $ 31,305
===========================================
</TABLE>
As of September 30, 1998, all equipment was either on lease or operating in
PLM-affiliated short-term trailer rental facilities, except for two
aircraft, a railcar, and 49 marine containers. The net book value of
off-lease equipment was $4.9 million as of September 30, 1998. As of
December 31, 1997, an aircraft, 2 railcars, and 108 marine containers were
off lease, with a net book value of $3.2 million.
During the nine months ended September 30, 1998, the Partnership sold or
disposed of marine containers, railcars, and trailers with an aggregate net
book value of $1.9 million, for aggregate proceeds of $1.4 million. During
the nine months ended September 30, 1997, the Partnership sold or disposed
of marine containers, railcars, trailers, and a marine vessel with an
aggregate net book value of $5.8 million and unused drydock reserves of
$1.0 million, for aggregate proceeds of $7.2 million.
5. Investments in Unconsolidated Special-Purpose Entities
The net investments in USPEs included the following jointly-owned equipment
(and related assets and liabilities) (in thousands of dollars):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---------------------------------------
<S> <C> <C>
50% interest in an entity owning a bulk-carrier $ 3,881 $ 2,264
35% interest in two commercial aircraft on a direct
finance lease 1,998 4,008
17% interest in a trust that owned a commercial aircraft -- 3,484
---------------------------------------
Net investments $ 5,879 $ 9,756
=======================================
</TABLE>
During January 1998, the Partnership received liquidating proceeds of $3.5
million from the sale of its 17% interest in a trust that owned a commercial
aircraft sold in late 1997.
<PAGE>
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
6. Contingencies
PLM International, Inc. (the Company) and various of its affiliates are
named as defendants in a lawsuit filed as a class action on January 22,
1997 in the Circuit Court of Mobile County, Mobile, Alabama, Case No.
CV-97-251 (the Koch action). The plaintiffs, who filed the complaint on
their own and on behalf of all class members similarly situated, are six
individuals who allegedly invested in certain California limited
partnerships (the Funds) for which the Company's wholly-owned subsidiary,
FSI, acts as the general partner, including the Partnership, PLM Equipment
Growth Funds V and VI, and PLM Equipment Growth & Income Fund VII. The
complaint asserts eight causes of action against all defendants, as
follows: fraud and deceit, suppression, negligent misrepresentation and
suppression, intentional breach of fiduciary duty, negligent breach of
fiduciary duty, unjust enrichment, conversion, and conspiracy.
Additionally, plaintiffs allege a cause of action against PLM Securities
Corp. for breach of third party beneficiary contracts in violation of the
National Association of Securities Dealers rules of fair practice.
Plaintiffs allege that each defendant owed plaintiffs and the class certain
duties due to their status as fiduciaries, financial advisors, agents, and
control persons. Based on these duties, plaintiffs assert liability against
the defendants for improper sales and marketing practices, mismanagement of
the Partnerships, and concealing such mismanagement from investors in the
Funds. Plaintiffs seek unspecified compensatory and recissory damages, as
well as punitive damages, and have offered to tender their limited
partnership units back to the defendants.
In March 1997, the defendants removed the Koch action from the state court
to the United States District Court for the Southern District of Alabama,
Southern Division (Civil Action No. 97-0177-BH-C) based on the district
court's diversity jurisdiction, following which plaintiffs filed a motion
to remand the action to the state court. In September 1997, the district
court denied plaintiffs' motion and dismissed without prejudice the
individual claims of the California class representative, reasoning that he
had been fraudulently joined as a plaintiff. In October 1997, defendants
filed a motion to compel arbitration of plaintiffs' claims, based on an
agreement to arbitrate contained in the limited partnership agreement of
each Partnership, and to stay further proceedings pending the outcome of
such arbitration. Notwithstanding plaintiffs' opposition, the district
court granted the motion in December 1997.
Following various unsuccessful requests that the district court reverse or
otherwise amend its decisions, plaintiffs filed with the U.S. Court of
Appeals for the Eleventh Circuit a notice of appeal from the district
court's order granting defendants' motion to compel arbitration and to stay
the proceedings, and of the district court's order denying plaintiffs'
motion to remand and dismissing the claims of the California plaintiff.
This appeal was voluntarily dismissed by plaintiffs in June 1998 pending
settlement of the Koch action, as discussed below.
On June 5, 1997, the Company and the affiliates who are also defendants in
the Koch action were named as defendants in another purported class action
filed in the San Francisco Superior Court, San Francisco, California, Case
No. 987062 (the Romei action). The plaintiff is an investor in PLM
Equipment Growth Fund V, and filed the complaint on her own behalf and on
behalf of all class members similarly situated who invested in certain
California limited partnerships for which FSI acts
<PAGE>
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
Contingencies (continued)
as the general partner, including the Funds. The complaint alleges the same
facts and the same nine causes of action as in the Koch action, plus five
additional causes of action against all of the defendants, as follows:
violations of California Business and Professions Code Sections 17200, et
seq. for alleged unfair and deceptive practices, constructive fraud, unjust
enrichment, violations of California Corporations Code Section 1507, and a
claim for treble damages under California Civil Code Section 3345.
On July 31, 1997, the defendants filed with the district court for the
Northern District of California (Case No. C-97-2847 WHO) a petition (the
petition) under the Federal Arbitration Act seeking to compel arbitration
of plaintiff's claims and for an order staying the state court proceedings
pending the outcome of the arbitration. In connection with this motion,
plaintiff agreed to a stay of the state court action pending the district
court's decision on the petition to compel arbitration. In October 1997,
the district court denied the Company's petition to compel arbitration and
in November 1997, agreed to hear the Company's motion for reconsideration
of this order. The hearing on this motion has been taken off calendar and
the district court has dismissed the petition pending settlement of the
Romei action, as discussed below. The state court action continues to be
stayed pending such resolution. In connection with her opposition to the
petition to compel arbitration, the plaintiff filed an amended complaint
with the state court in August 1997 alleging two new causes of action for
violations of the California Securities Law of 1968 (California
Corporations Code Sections 25400 and 25500) and for violation of California
Civil Code Sections 1709 and 1710. Plaintiff also served certain discovery
requests on defendants. Because of the stay, no response to the amended
complaint or to the discovery is currently required.
In May 1998, all parties to the Koch and Romei actions entered into a
memorandum of understanding (MOU) related to the settlement of those
actions. The MOU contemplates a settlement and release of all claims in
exchange for payment of up to $6.0 million. The final settlement amount
will depend on the number of authorized claims filed by authorized
claimants, the amount of the administrative costs incurred in connection
with the settlement, and the amount of attorneys' fees awarded by the
Alabama district court. The Company will pay up to $0.3 million of the
settlement, with the remainder being funded by an insurance policy. The
defendants will continue to deny each of the claims and contentions and
admit no liability in connection with the proposed settlement. The
settlement remains subject to numerous conditions, including but not
limited to (a) agreement and execution by the parties of a settlement
agreement, (b) notice to and certification of the class for settlement
purposes and (c) preliminary and final approval of the settlement by the
Alabama district court. The Company continues to believe that the
allegations of the Koch and Romei actions are completely without merit and
intends to continue to defend this matter vigorously if the settlement is
not consummated.
Debt
In the first nine months of 1998, the Partnership paid the second annual
principal payment of $8.3 million of the outstanding notes payable.
8. Net Income (Loss) Per Weighted-Average Partnership Unit
Net income (loss) per weighted-average Partnership unit was computed by
dividing net income (loss) attributable to limited partners by the
weighted-average number of Partnership units deemed outstanding during the
period. The weighted-average number of Partnership units deemed outstanding
during the three and nine months ended September 30, 1998 and 1997 was
8,628,420.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(I) RESULTS OF OPERATIONS
Comparison of PLM Equipment Growth Fund IV's (the Partnership's) Operating
Results for the Three Months Ended September 30, 1998 and 1997
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating expenses, and asset-specific insurance expenses) on owned
equipment increased during the third quarter of 1998 compared to the same period
of 1997. The following table presents lease revenues less direct expenses by
owned equipment type (in thousands of dollars):
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
1998 1997
-------------------------------
<S> <C> <C>
Aircraft $ 851 $ 907
Rail equipment 713 694
Trailers 300 281
Marine vessels 168 99
Marine containers 142 143
</TABLE>
Aircraft: Aircraft lease revenues and direct expenses were $0.9 million and
$20,000, respectively, for the third quarter of 1998, compared to $1.0 million
and $0.1 million, respectively, during the same period of 1997. The decrease in
lease revenues in the third quarter of 1998 was due to the off-lease status of
an aircraft, when compared to the same period in 1997 when the aircraft was on
lease for two months in the third quarter. Direct expenses decreased due to the
repairs done in the third quarter of 1997 on the aircraft that came off lease in
August of 1997.
Rail equipment: Rail equipment lease revenues and direct expenses were $0.9
million and $0.2 million, respectively, for the third quarter of 1998 and 1997.
Rail equipment contribution remained approximately the same due to the relative
stability of the railcar fleet.
Trailers: Trailer lease revenues and direct expenses were $0.4 million and $0.1
million, respectively, for the third quarter of 1998, compared to $0.5 million
and $0.2 million, respectively, during the same period of 1997. The number of
trailers owned by the Partnership has been declining over the past year due to
sales and dispositions. The result of the trailer sales and dispositions has
been a reduction in trailer contribution.
Marine vessels: Marine vessel lease revenues and direct expenses were $0.4
million and $0.2 million, respectively, for the third quarter of 1998, compared
to $0.5 million and $0.4 million, respectively, during the same period of 1997.
Lease revenue decreased in the third quarter of 1998, compared to the same
period in 1997, due to the lower re-lease rates for the remaining marine vessel
as a result of a softer bulk carrier vessel market. Direct expenses decreased in
the third quarter of 1998 when compared to the same period in 1997 due to the
reduction in hull and machinery insurance and drydock expense.
Marine containers: Marine container lease revenues and direct expenses were $0.1
million and $2,000, respectively, for the third quarter of 1998, compared to
$0.1 million and $4,000, respectively, during the same period of 1997. The
number of marine containers owned by the Partnership has been declining over the
past twelve months due to sales and dispositions. Marine container contribution
remained relatively stable. The reduction was offset in part, by higher
utilization for a group of marine containers when compared to the same period in
1997.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $2.2 million for the third quarter of 1998 decreased
from $3.6 million for the same period in 1997. Significant variances are
explained as follows:
(1) The $0.6 million decrease in bad debt expense was due to a decrease of
$0.5 million in bad debts resulting from the General Partner's evaluation of the
collectibility of receivables due from certain lessees and the collection of
$0.1 million in outstanding receivables from certain lessees that were
previously reserved for as bad debts in the first six months of 1998.
(2) A $0.4 million decrease in depreciation and amortization expenses from
1997 levels reflects the sale of certain assets during 1998 and 1997 and the use
of the double-declining balance depreciation method which results in greater
depreciation in the first years an asset is owned.
(3) A $0.3 million decrease in administrative expenses from 1997 levels
resulted primarily from reduced legal fees to collect outstanding receivables
due from aircraft lessees.
(4) A $0.2 million decrease in interest expense was due to lower average
borrowings outstanding during the quarter ended September 30, 1998, compared to
the same period in 1997.
(C) Net Gain (Loss) on Disposition of Owned Equipment
The net loss on disposition of equipment for the third quarter of 1998 totaled
$13,000, which resulted from the sale or disposal of trailers and marine
containers with an aggregate net book value of $0.6 million, for proceeds of
$0.6 million. Net gain on disposition of equipment for the third quarter of 1997
totaled $16,000, and resulted from the sale or disposal of marine containers, a
railcar, and a trailer with an aggregate net book value of $0.1 million, for
aggregate proceeds of $0.1 million.
Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities (USPEs)
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
1998 1997
-------------------------------
<S> <C> <C>
Aircraft $ 142 $ 115
Marine vessel (96) (248 )
Equity in Net Income (Loss) of USPEs $ 46 $ (133 )
==================================================================
</TABLE>
Aircraft: As of September 30, 1998, the Partnership had an interest in a trust
that owns two commercial aircraft on direct finance lease. As of September 30,
1997, the Partnership owned an interest in a trust that owns six commercial
aircraft and had an interest in a trust that owns two commercial aircraft on
direct finance lease. Aircraft revenues and expenses were $0.1 million and $0,
respectively, for the third quarter of 1998, compared to $0.4 million and $0.3
million, respectively, during the same period in 1997. The decrease in lease
revenues and expenses during the third quarter of 1998 was due to the sale of
the Partnership's interest in the trust that owned six commercial aircraft
during the fourth quarter of 1997.
Marine vessel: As of September 30, 1998 and 1997, the Partnership had an
interest in an entity owning a marine vessel. Marine vessel revenues and
expenses were $0.3 million and $0.4 million, respectively, for the third quarter
of 1998, compared to $0.3 million and $0.5 million, respectively, during the
same period in 1997. Direct expenses decreased in the quarter ended September
30, 1998 due to decreased repairs and maintenance expense.
(E) Net Income (Loss)
As a result of the foregoing, the Partnership's net income was $0.1 million for
the third quarter of 1998, compared to net loss of $1.5 million during the same
period of 1997. The Partnership's ability to operate and liquidate assets, and
re-lease those assets whose leases expire is subject to many factors, and the
Partnership's performance in the quarter ended September 30, 1998 is not
necessarily indicative of future periods. In the third quarter of 1998, the
Partnership distributed $0.8 million to the limited partners, or $0.09 per
weighted-average limited partnership unit.
Comparison of the Partnership's Operating Results for the Nine Months Ended
September 30, 1998 and 1997
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating expenses, and asset-specific insurance expenses) on owned
equipment decreased during nine months ended September 30, 1998, compared to the
same period of 1997. The following table presents lease revenues less direct
expenses by owned equipment type (in thousands of dollars):
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1998 1997
------------------------------
<S> <C> <C>
Aircraft $ 2,557 $ 3,327
Rail equipment 1,980 1,944
Trailers 893 1,057
Marine containers 615 812
Marine vessels 462 528
</TABLE>
Aircraft: Aircraft lease revenues and direct expenses were $2.6 million and $0.1
million, respectively, for the nine months ended September 30, 1998, compared to
$3.3 million and $0, respectively, during the same period of 1997. The decrease
in lease revenues in the nine months ended September 30, 1998 was due to the
off-lease status of an aircraft, when compared to the same period in 1997 when
the aircraft was on lease for eight months. The decrease caused by the off-lease
status of this plane was offset, in part, by an increase in the re-lease rate
for another aircraft. Direct expenses increased due to the repair costs for an
aircraft that were accrued for in 1996 that were lower than estimated. These
accruals were reversed in 1997.
Rail equipment: Rail equipment lease revenues and direct expenses were $2.7
million and $0.7 million, respectively, for the nine months ended September 30,
1998, compared to $2.7 million and $0.8 million, respectively, during the same
period of 1997. Rail equipment contribution remained approximately the same due
to the relative stability of railcar fleet.
Trailers: Trailer lease revenues and direct expenses were $1.2 million and $0.3
million, respectively, for the nine months ended September 30, 1998, compared to
$1.5 million and $0.4 million, respectively, during the same period of 1997. The
number of trailers owned by the Partnership has been declining over the past
year due to sales and dispositions. Although the number of trailers has been
declining, the Partnership had an increase in the trailer contribution due to
higher utilization for the remaining fleet when compared to the same period in
1997.
Marine containers: Marine container lease revenues and direct expenses were $0.6
million and $6,000, respectively, for the nine months ended September 30, 1998,
compared to $0.8 million and $12,000, respectively, during the same period of
1997. The number of marine containers owned by the Partnership has been
declining over the past twelve months due to sales and dispositions. As a
result, marine container contribution decreased. The reduction was offset in
part, by higher utilization for a group of marine containers in the nine months
ended September 30, 1998, compared to the same period in 1997.
Marine vessels: Marine vessel lease revenues and direct expenses were $1.2
million and $0.8 million, respectively, for the nine months ended September 30,
1998, compared to $1.5 million and $1.0 million, respectively, during the same
period of 1997. Marine vessel contributions decreased due to the sale of a
marine vessel in 1997 and lower re-lease rates for the remaining marine vessel
as a result of a softer bulk carrier vessel market. The decrease in marine
contribution was offset, in part, by a $0.1 million loss-of-hire insurance
refund received during the second quarter of 1998 from TEI due to lower claims
from the insured Partnership and other insured affiliated partnerships.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $7.2 million for the nine months ended September 30,
1998 decreased from $10.1 million for the same period in 1997. Significant
variances are explained as follows:
(1) A $1.0 million decrease in administrative expenses from 1997 levels
resulted primarily from reduced legal fees needed to collect outstanding
receivables due to the Partnership from aircraft lessees.
(2) A $1.0 million decrease in depreciation and amortization expenses from
1997 levels reflects the sale of certain assets during 1998 and 1997 and the use
of the double-declining balance depreciation method, which results in greater
depreciation in the first years an asset is owned.
(3) A $0.6 million decrease in interest expense was due to lower average
borrowings outstanding during the nine months ended September 30, 1998, compared
to the same period in 1997.
(4) The $0.2 million decrease in bad debt expenses was due to the General
Partner's evaluation of the collectibility of receivables due from certain
lessees.
(5) A $0.1 million decrease in management fees to affiliates reflects the
lower levels of lease revenues in the nine months ended September 30, 1998,
compared to the same period in 1997.
(C) Interest and Other Income
Interest and other income decreased $0.6 million in the nine months ended
September 30, 1998, compared to the same period in 1997, due to the following:
(1) The recognition in 1997 of $0.5 million in loss-of-hire and general
claim insurance recovery relating to generator repairs on one marine vessel sold
in 1994. No similar recovery occurred in 1998.
(2) A decrease of $0.1 million in interest income due to lower average cash
balances compared to the same period in 1997.
(D) Net Gain (Loss) on Disposition of Owned Equipment
The net loss on disposition of equipment for the nine months ended September 30,
1998 totaled $0.5 million, which resulted from the sale of trailers with a net
book value of $1.4 million, for proceeds of $0.9 million. In addition, the
Partnership sold or disposed of marine containers, and railcars with an
aggregate net book value of $0.5 million, for aggregate proceeds of $0.5
million. For the nine months ended September 30, 1997, the $2.4 million net gain
on disposition of equipment resulted from the sale or disposal of marine
containers, railcars, trailers, and a marine vessel, with an aggregate net book
value of $5.8 million and unused drydock reserves of $1.0 million, for aggregate
proceeds of $7.2 million.
<PAGE>
(E) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1998 1997
------------------------------
<S> <C> <C>
Aircraft $ 514 $ 470
Marine vessels (176 ) (727)
Equity in Net Income (Loss) of USPEs $ 338 $ (257 )
==================================================================
</TABLE>
Aircraft: As of September 30, 1998, the Partnership had an interest in a trust
that owns two commercial aircraft on direct finance lease. As of September 30,
1997, the Partnership owned an interest in a trust that owns six commercial
aircraft and had an interest in a trust that owns two commercial aircraft on
direct finance lease. Aircraft revenues and expenses were $0.5 million and $0,
respectively, for the nine months ended September 30, 1998, compared to $1.3
million and $0.8 million, respectively, during the same period of 1997. The
decrease in lease revenues and depreciation and administrative expenses during
the nine months ended September 30, 1998 was due to the sale of the
Partnership's interest in the trust that owned six commercial aircraft during
the fourth quarter of 1997.
Marine vessel: As of September 30, 1998 and 1997, the Partnership had an
interest in an entity owning a marine vessel. Marine vessel revenues and
expenses were $0.9 million and $1.1 million, respectively, for the nine months
ended September 30, 1998, compared to $0.8 million and $1.5 million,
respectively, during the same period in 1997. Lease revenue increased in the
nine months ended September 30, 1998 primarily due to the marine vessel being
off-hire for 19 days in the nine months ended September 30, 1997 compared to 4
days in the same period of 1998. Direct expenses decreased in the nine months
ended September 30, 1998 due to lower survey and repairs and maintenance
expenses.
(F) Net Income (Loss)
As a result of the foregoing, the Partnership's net loss was $0.7 million for
the nine months ended September 30, 1998, compared to a net income of $0.5
million during the same period of 1997. The Partnership's ability to operate and
liquidate assets, and re-lease those assets whose leases expire is subject to
many factors, and the Partnership's performance in the nine months ended
September 30, 1998 is not necessarily indicative of future periods. In the nine
months ended September 30, 1998, the Partnership distributed $2.5 million to the
limited partners, or $0.29 per weighted-average limited partnership unit.
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES AND LIQUIDITY
For the nine months ended September 30, 1998, the Partnership generated $3.6
million in operating cash (net cash provided by operating activities plus
non-liquidating distributions from USPEs) to meet its operating obligations and
maintain the current level of distributions (total for the nine months ended
September 30, 1998 of approximately $2.6 million) to the partners.
During the nine months ended September 30, 1998, the Partnership sold or
disposed of marine containers, railcars, and trailers with an aggregate net book
value of $1.9 million, for proceeds of $1.4 million of which $1.3 million were
received during the nine months ended September 30, 1998.
In July 1998, the Partnership paid the second annual principal payment of $8.3
million of the outstanding notes payable.
<PAGE>
(III) EFFECTS OF YEAR 2000
It is possible that the General Partner's currently installed computer systems,
software products and other business systems, or the Partnership's vendors,
service providers and customers, working either alone or in conjunction with
other software or systems, may not accept input of, store, manipulate and output
dates on or after January 1, 2000 without error or interruption (a problem
commonly known as the "Year 2000" problem). As the Partnership relies
substantially on the General Partner's software systems, applications and
control devices in operating and monitoring significant aspects of its business,
any Year 2000 problem suffered by the General Partner could have a material
adverse effect on the Partnership's business, financial condition and results of
operations.
The General Partner has established a special Year 2000 oversight committee to
review the impact of Year 2000 issues on its software products and other
business systems in order to determine whether such systems will retain
functionality after December 31, 1999. The General Partner (a) is currently
integrating Year 2000 compliant programming code into its existing internally
customized and internally developed transaction processing software systems and
(b) the General Partner's accounting and asset management software systems have
either already been made Year 2000 compliant or Year 2000 compliant upgrades of
such systems are planned to be implemented by the General Partner before the end
of fiscal 1999. Although the General Partner believes that its Year 2000
compliance program can be completed by the beginning of 1999, there can be no
assurance that the compliance program will be completed by that date. To date,
the costs incurred and allocated to the Partnership to become Year 2000
compliant have not been material. In addition, the General Partner believes the
future costs allocable to the Partnership to become Year 2000 compliant will not
be material.
Some risks associated with the Year 2000 problem are beyond the ability of the
Partnership to control, including the extent to which third parties can address
the Year 2000 problem. The General Partner has begun to communicate with
vendors, services providers and customers in order to assess the Year 2000
compliance readiness of such parties and the extent to which the Partnership is
vulnerable to any third-party Year 2000 issues. There can be no assurance that
the software systems of such parties will be converted or made Year 2000
compliant in a timely manner. Any failure by the General Partner or such other
parties to make their respective systems Year 2000 compliant could have a
material adverse effect on the business, financial position and results of
operations of the Partnership. The General Partner will make an ongoing effort
to recognize and evaluate potential exposure relating to third-party Year 2000
non-compliance and will develop a contingency plan if the General Partner
determines, or is unable to determine, that third-party non-compliance would
have a material adverse effect on the Partnership's business, financial position
or results of operation.
(IV) 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 company's operating segments and related
disclosures about its products, services, geographic areas, and major customers.
Both statements are effective for the Partnership's fiscal year ended December
31, 1998, with earlier application permitted. The effect of adoption of these
statements will be limited to the form and content of the Partnership's
disclosures and will not impact the Partnership's results of operations, cash
flow, or financial position.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an entity
recognize those items as assets or liabilities in the statement of financial
position and measure them at fair value. This statement is effective for all
quarters of fiscal years beginning after nine15, 1999. As of September 30, 1998,
the General Partner is reviewing the effect this standard will have on the
Partnership's consolidated financial statements.
(V) OUTLOOK FOR THE FUTURE
Since the Partnership is in its holding or passive liquidation phase, the
General Partner will be seeking to selectively re-lease or sell assets as the
existing leases expire. Sale decisions will cause the operating performance of
the Partnership to decline over the remainder of its life.
Several factors may affect the Partnership's operating performance in 1998 and
beyond, including changes in the markets for the Partnership's equipment and
changes in the regulatory environment in which that equipment operates.
The Partnership's operation of a diversified equipment portfolio in a broad base
of markets is intended to reduce its exposure to volatility in individual
equipment sectors.
The ability of the Partnership to realize acceptable lease rates on its
equipment in the different equipment markets is contingent on many factors, such
as specific market conditions and economic activity, technological obsolescence,
and government or other regulations. The unpredictability of some of these
factors, or of their occurrence, makes it difficult for the General Partner to
clearly define trends or influences that may impact the performance of the
Partnership's equipment. The General Partner continually monitors both the
equipment markets and the performance of the Partnership's equipment in these
markets. The General Partner may decide to reduce the Partnership's exposure to
those equipment markets in which it determines that it cannot operate equipment
and achieve acceptable rates of return.
The Partnership intends to use cash flow from operations to satisfy its
operating requirements, maintain working capital reserves, pay principal and
interest on debt, and pay cash distributions to the investors.
(VI) FORWARD-LOOKING INFORMATION
Except for the historical information contained herein, the discussion in this
Form 10-Q contains forward-looking statements that contain 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.
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
<PAGE>
Pursuant to the requirements 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.
PLM EQUIPMENT GROWTH FUND IV
By: PLM Financial Services, Inc.
General Partner
Date: November 4, 1998 By: /s/ Richard K Brock
---------------------
Richard K Brock
Vice President and
Corporate Controller
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,391
<SECURITIES> 0
<RECEIVABLES> 4,239
<ALLOWANCES> 3,327
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 82,690
<DEPRECIATION> 57,586
<TOTAL-ASSETS> 33,369
<CURRENT-LIABILITIES> 0
<BONDS> 12,750
0
0
<COMMON> 0
<OTHER-SE> 17,941
<TOTAL-LIABILITY-AND-EQUITY> 33,369
<SALES> 0
<TOTAL-REVENUES> 8,089
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,600
<LOSS-PROVISION> 154
<INTEREST-EXPENSE> 1,335
<INCOME-PRETAX> (662)
<INCOME-TAX> 0
<INCOME-CONTINUING> (662)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (662)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
