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 MARCH 31, 1999
[ ] 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>
March 31, December 31,
1999 1998
------------------------------------
ASSETS
<S> <C> <C>
Equipment held for operating leases, at cost $ 80,388 $ 82,278
Less accumulated depreciation (58,858 ) (58,674 )
------------------------------------
21,530 23,604
Net equipment
Cash and cash equivalents 813 778
Restricted cash 147 147
Accounts receivable, less allowance for doubtful
accounts of $3,124 in 1999 and $3,126 in 1998 806 874
Investments in unconsolidated special-purpose entities 5,649 5,739
Deferred charges, less accumulated amortization
of $330 in 1999 and $321 in 1998 48 58
Prepaid expenses and other assets 99 50
------------------------------------
Total assets $ 29,092 $ 31,250
====================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 295 $ 563
Due to affiliates 237 244
Lessee deposits and reserve for repairs 1,142 1,126
Notes payable 12,750 12,750
------------------------------------
Total liabilities 14,424 14,683
------------------------------------
Partners' capital:
Limited partners (8,628,420 limited partnership units
as of March 31, 1999 and December 31, 1998) 14,668 16,567
General Partner -- --
------------------------------------
Total partners' capital 14,668 16,567
------------------------------------
Total liabilities and partners' capital $ 29,092 $ 31,250
====================================
</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 March 31,
1999 1998
----------------------------
REVENUES
<S> <C> <C>
Lease revenue $ 2,462 $3,074
Interest and other income 21 74
Net loss on disposition of equipment (195 ) (480 )
----------------------------
Total revenues 2,288 2,668
EXPENSES
Depreciation and amortization 1,228 1,512
Repairs and maintenance 1,102 933
Equipment operating expenses 159 236
Insurance expense to affiliate -- (6 )
Other insurance expense 64 99
Management fees to affiliate 139 173
Interest expense 311 512
General and administrative expenses
to affiliates 143 150
Other general and administrative expenses 155 16
Provision for (recovery of) bad debt expense (2 ) 98
----------------------------
Total expenses 3,299 3,723
Equity in net income of unconsolidated special-
purpose entities 20 210
----------------------------
Net loss $ (991 ) $ (845 )
============================
PARTNERS' SHARE OF NET INCOME (LOSS)
Limited partners $ (1,036 ) $ (890 )
General Partner 45 45
----------------------------
Total $ (991 ) $ (845 )
============================
Net loss per weighted-average limited partnership unit $ (0.12 ) $(0.10 )
============================
Cash distribution $ 908 $ 908
============================
Cash distribution per weighted-average limited partnership unit $ 0.10 $ 0.10
============================
</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, 1997 to March 31, 1999
(in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
---------------------------------------------------
<S> <C> <C> <C>
Partners' capital as of December 31, 1997 $ 21,227 $ -- $ 21,227
Net income (loss) (1,309 ) 182 (1,127 )
Cash distribution (3,351 ) (182 ) (3,533 )
-------------------------------------------------------------------------------------------------------------------------
Partners' capital as of December 31, 1998 16,567 -- 16,567
Net income (loss) (1,036 ) 45 (991 )
Cash distribution (863 ) (45 ) (908 )
--------------------------------------------------
Partner's capital as of March 31, 1999 $ 14,668 $ - $ 14,668
==================================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
For the Three Months
ended March 31,
1999 1998
----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (991 ) $ (845 )
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Depreciation and amortization 1,228 1,512
Net loss on disposition of equipment 195 480
Equity in net income of unconsolidated special-purpose
entities (20 ) (210 )
Changes in operating assets and liabilities:
Restricted cash -- 100
Accounts receivable, net 92 130
Prepaid expenses and other assets (49 ) 16
Accounts payable and accrued expenses (268 ) (628 )
Due to affiliates (7 ) 19
Lessee deposits and reserve for repairs 16 (127 )
----------------
------------
Net cash provided by operating activities 196 447
----------------------------
INVESTING ACTIVITIES
Payments for capitalized improvements -- (7 )
Proceeds from disposition of equipment 637 284
Distribution from liquidation of unconsolidated special-
purpose entities -- 3,470
Distribution from unconsolidated special-purpose entities 110 232
----------------------------
Net cash provided by investing activities 747 3,979
----------------------------
FINANCING ACTIVITIES
Cash distribution paid to limited partners (863 ) (863 )
Cash distribution paid to General Partner (45 ) (45 )
----------------------------
----------------------------
Net cash used in financing activities (908 ) (908 )
----------------------------
Net increase in cash and cash equivalents 35 3,518
Cash and cash equivalents at beginning of year 778 3,650
----------------------------
Cash and cash equivalents at end of period $ 813 $ 7,168
============================
SUPPLEMENTAL INFORMATION
Interest paid $ 311 $ 512
============================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
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 March 31, 1999 and December 31, 1998, the
statements of operations for the three months ended March 31, 1999 and
1998, the statements of cash flows for the three months ended March 31,
1999 and 1998, and the statements of changes in partners' capital for the
period from December 31, 1997 to March 31, 1999. 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, 1998, on file with the Securities and
Exchange Commission.
2. Schedule of Partnership Phases
In accordance with the limited partnership agreement, the Partnership
entered its passive phase on January 1, 1997 and as a result, the
Partnership is not permitted to reinvest in equipment. On January 1, 1999,
the Partnership entered its liquidation phase and has commenced an orderly
liquidation of the Partnership assets. The Partnership will terminate on
December 31, 2009, unless terminated earlier upon sale of all equipment or
by certain other events. During the liquidation phase, the Partnership's
assets will continue to be recorded at the lower of carrying amount or fair
value less costs to sell.
3. Cash Distributions
Cash distributions are recorded when paid and may include amounts in excess
of net income that are considered to represent a return of capital. For the
three months ended March 31, 1999 and 1998, cash distributions totaled $0.9
million. Cash distributions to the limited partners of $0.9 million for the
three months ended March 31, 1999 and 1998, were deemed to be a return of
capital.
Cash distributions related to the results from the first quarter of 1999,
of $0.7 million, will be paid during the second quarter of 1999.
4. Transactions with General Partner and Affiliates
The balance due to affiliates as of March 31, 1999 and December 31, 1998,
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 $14,000 and $9,000 were payable as of March 31, 1999 and December
31, 1998, respectively.
<PAGE>
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
4. Transactions with General Partner and Affiliates (continued)
The Partnership's proportional share of the affiliated expenses incurred by
the USPEs during 1999 and 1998 is listed in the following table (in
thousands of dollars):
For the Three Months
Ended March 31,
1999 1998
-------------------------
Management fees $ 16 $ 20
Data processing and administrative
expenses 3 5
Insurance expense 3 2
Transportation Equipment Indemnity Company, Ltd., an affiliate of the
General Partner and currently in liquidation, will no longer provide
certain marine insurance coverage as had been provided during 1998. These
services will be provided by an unaffiliated third party.
5. Equipment
The components of owned equipment were as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------------------------------------
<S> <C> <C>
Aircraft $ 42,734 $ 42,734
Railcars 13,560 14,752
Marine containers 10,588 11,012
Marine vessel 9,719 9,719
Trailers 3,787 4,061
----------------------------------------
80,388 82,278
Less accumulated depreciation (58,858 ) (58,674 )
----------------------------------------
Net equipment $ 21,530 $ 23,604
========================================
</TABLE>
As of March 31, 1999, all equipment was either on lease or operating in
PLM-affiliated short-term trailer rental facilities, except for two
commercial aircraft, five railcars, and 33 marine containers, with an
aggregate net book value of $4.3 million. As of December 31, 1998, all
equipment was either on lease or operating in PLM-affiliated short-term
trailer rental facilities, except for two commercial aircraft, five
railcars, and 46 marine containers, with an aggregate net book value of
$4.6 million.
During the three months ended March 31, 1999, the Partnership sold or
disposed of marine containers, railcars, and trailers with an aggregate net
book value of $0.9 million, for aggregate proceeds of $0.7 million.
During the three months ended March 31, 1998, the Partnership sold or
disposed of marine containers, railcars, and trailers with an aggregate net
book value of $1.0 million, for aggregate proceeds of $0.5 million.
<PAGE>
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
6. 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>
March 31, December 31,
1999 1998
------------------------------------
<S> <C> <C>
35% interest in two Stage II commercial aircraft on a direct
finance lease $ 3,801 $ 3,880
50% interest in an entity owning a bulk-carrier 1,848 1,859
--------------------------------------------------------------------------------------------------------
Net investments $ 5,649 $ 5,739
====================================
</TABLE>
7. Operating Segments
The Partnership operates in five different segments: aircraft leasing,
railcar leasing, marine container leasing, marine vessel leasing, and
trailer leasing. Each equipment leasing segment engages in short-term to
mid-term operating leases to a variety of customers. The following tables
present a summary of the operating segments (in thousands of dollars):
<TABLE>
<CAPTION>
Marine Marine
Aircraft Railcar Container Vessel Trailer All
For the quarter ended March 31, 1999 Leasing Leasing Leasing Leasing Leasing Other<F1> Total
------------------------------------ ------- ------- ------- ------- ------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Lease revenue $ 871 $ 847 $ 105 $ 352 $ 287 $ -- $ 2,462
Interest income and other 2 -- -- -- -- 19 21
Gain (loss) on disposition of -- (163 ) 21 -- (53 ) -- (195 )
equipment
-------------------------------------------------------------------------
Total revenues 873 684 126 352 234 19 2,288
COSTS AND EXPENSES
Operations support 663 211 1 364 77 9 1,325
Depreciation and amortization 731 171 154 81 82 9 1,228
Interest expense -- -- -- -- -- 311 311
Management fees to affiliates 38 60 5 17 19 -- 139
General and administrative expenses 65 26 2 6 72 127 298
Provision for (recovery of) bad -- (6 ) -- -- 4 -- (2 )
debts
-------------------------------------------------------------------------
Total costs and expenses 1,497 462 162 468 254 456 3,299
-------------------------------------------------------------------------
Equity in net income (loss) of USPEs 137 -- -- (117 ) -- -- 20
-------------------------------------------------------------------------
=========================================================================
Net income (loss) $ (487 ) $ 222 $ (36 )$ (233 ) $ (20 )$ (437 ) $ (991 )
=========================================================================
Total assets as of March 31, 1999 $ 14,705 $ 5,159 $ 2,104 $ 3,976 $ 1,849 $ 1,299 $ 29,092
=========================================================================
<FN>
<F1> Includes interest income and costs not identifiable to a particular
segment, such as interest expense, and amortization expense, and certain
operations support and general and administrative expenses.
</FN>
</TABLE>
<PAGE>
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
7. Operating Segments (continued)
<TABLE>
<CAPTION>
Marine Marine
Aircraft Railcar Container Vessel Trailer
For the quarter ended March 31, 1998 Leasing Leasing Leasing Leasing Leasing All Other<F1> Total
------------------------------------ ------- ------- ------- ------- ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Lease revenue $ 871 $ 904 $ 332 $ 500 $ 467 $ -- $ 3,074
Interest income and other 6 -- -- -- -- 68 74
Gain (loss) on disposition of (2 ) (9 ) 4 -- (473 ) -- (480 )
equipment
-------------------------------------------------------------------------
Total revenues 875 895 336 500 (6 ) 68 2,668
COSTS AND EXPENSES
Operations support 590 168 2 364 130 8 1,262
Depreciation and amortization 829 229 186 96 155 17 1,512
Interest expense -- -- -- -- -- 512 512
Management fees to affiliate 38 62 24 25 24 -- 173
General and administrative expenses 35 34 5 4 85 3 166
Provision for (recovery of) bad -- (13 ) -- -- 111 -- 98
debts
-------------------------------------------------------------------------
Total costs and expenses 1,492 480 217 489 505 540 3,723
-------------------------------------------------------------------------
Equity in net income (loss) of USPEs 229 -- -- (19 ) -- -- 210
-------------------------------------------------------------------------
=========================================================================
Net income (loss) $ (388 )$ 415 $ 119 $ (8 )$ (511 )$ (472 )$ (845 )
=========================================================================
Total assets as of March 31, 1998 $ 18,157 $ 6,602 $ 3,442 $ 4,500 $ 3,051 $ 7,848 $ 43,600
=========================================================================
<FN>
<F1> Includes interest income and costs not identifiable to a particular
segment, such as interest expense, and amortization expense, and certain
operations support and general and administrative exenses.
</FN>
</TABLE>
8. Net Loss Per Weighted-Average Partnership Unit
Net loss per weighted-average Partnership unit was computed by dividing net
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 months ended March 31, 1999 and 1998 was 8,628,420.
9. Contingencies
PLM International, (the Company) and various of its affiliates are named as
defendants in a lawsuit filed as a purported class action on January 22,
1997 in the Circuit Court of Mobile County, Mobile, Alabama, Case No.
CV-97-251 (the Koch action). Plaintiffs, who filed the complaint on their
own and on behalf of all class members similarly situated, are six
individuals who invested in certain California limited partnerships (the
Partnerships) for which the Company's wholly-owned subsidiary, PLM
Financial Services, Inc. (FSI), acts as the general partner, including the
Partnership, PLM Equipment Growth Funds V, and VI, and PLM Equipment Growth
& Income Fund VII (the Growth Funds). The state court ex parte certified
the action as a class action (i.e., solely upon plaintiffs' request and
without the Company being given the opportunity to file an opposition). 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
<PAGE>
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
9. Contingencies (continued)
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 defendants for improper sales and
marketing practices, mismanagement of the Growth Funds, and concealing such
mismanagement from investors in the Growth Funds. Plaintiffs seek
unspecified compensatory and recissory damages, as well as punitive
damages, and have offered to tender their 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. Removal of the action to federal
court automatically nullified the state court's ex parte certification of
the class. In September 1997, the district court denied plaintiffs' motion
to remand the action to state court and dismissed without prejudice the
individual claims of the California plaintiff, 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 Growth
Fund, and to stay further proceedings pending the outcome of such
arbitration. Notwithstanding plaintiffs' opposition, the district court
granted defendants' motion in December 1997.
Following various unsuccessful requests that the district court reverse, or
otherwise certify for appeal, its order denying plaintiffs' motion to
remand the case to state court and dismissing the California plaintiff's
claims, plaintiffs filed with the U.S. Court of Appeals for the Eleventh
Circuit a petition for a writ of mandamus seeking to reverse the district
court's order. The Eleventh Circuit denied plaintiffs' petition in November
of 1997, and further denied plaintiffs subsequent motion in the Eleventh
Circuit for a rehearing on this issue. Plaintiffs also appealed the
district court's order granting defendants' motion to compel arbitration,
but in June of 1998 voluntarily dismissed their appeal 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 as the general partner,
including the Growth 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, 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, but
in November 1997, agreed to hear the Company's motion for reconsideration
of this order. The hearing on this motion has been
<PAGE>
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
9. Contingencies (continued)
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, 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 Monetary Settlement). The Monetary Settlement contemplated by
the MOU provides for stipulating to a class for settlement purposes, and a
settlement and release of all claims against defendants and third party
brokers in exchange for payment for the benefit of the Class of up to $6.0
million. The final settlement amount will depend on the number of claims
filed by authorized claimants who are members of the Class, 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 Monetary Settlement, with the
remainder being funded by an insurance policy.
The parties to the Monetary Settlement have also agreed in principal to an
equitable settlement (the Equitable Settlement) which provides, among other
things, (a) for the extension of the operating lives of PLM Equipment
Growth Fund V, PLM Equipment Growth Fund VI, and PLM Equipment Growth &
Income Fund VII (the Funds) by judicial amendment to each of their
partnership agreements, such that FSI, the general partner of each such
Fund, will be permitted to reinvest cash flow, surplus partnership funds or
retained proceeds in additional equipment into the year 2004, and will
liquidate the partnerships' equipment in 2006; (b) that FSI be entitled to
earn front end fees (including acquisition and lease negotiation fees) in
excess of the compensatory limitations set forth in the NASAA Statement of
Policy by judicial amendment to the Partnership Agreements for each Fund;
(c) for a one time redemption of up to 10% of the outstanding units of each
Fund at 80% of such partnership's net asset value; and (d) for the deferral
of a portion of FSI's management fees. The Equitable Settlement also
provides for payment of the Equitable Class attorneys' fees from
Partnership funds in the event that distributions paid to investors in the
Funds during the extension period reach a certain internal rate of return.
Defendants will continue to deny each of the claims and contentions and
admit no liability in connection with the proposed settlements. The parties
completed the documentation of the monetary and equitable settlements in
April 1999. The monetary settlement remains subject to numerous conditions,
including but not limited to, notice to and certification of the monetary
class for purposes of the monetary settlement, and preliminary and final
approval of the monetary settlement by the Alabama district court. The
equitable settlement remains subject to numerous conditions, including but
not limited to: (a) notice to the current unitholders in Funds V, VI, and
VII (the equitable class) and certification of the equitable class for
purposes of the equitable settlement, (b) preparation, review by the
Securities and Exchange Commission (SEC), and dissemination to the members
of the equitable class of solicitation statements regarding the proposed
extensions, (c) disapproval by less than 50% of the limited partners in
Funds V, VI, and VII of the proposed amendments to the limited partnership
agreements, (d) judicial approval of the proposed amendments to the limited
partnership agreements, and (e) preliminary and final approval of the
equitable settlement by the Alabama district court. If the
<PAGE>
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
9. Contingencies (continued)
district court grants preliminary approval, notices to the monetary class
and equitable class will be sent following review by the SEC of the
solicitation statements to be prepared in connection with the equitable
settlement. The monetary settlement, if approved, will go forward
regardless of whether the equitable settlement is approved or not. 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 monetary settlement is not consummated.
The Partnership, together with affiliates, has initiated litigation in
various official forums in India against each of two defaulting Indian
airline lessees to repossess Partnership property and to recover damages
for failure to pay rent and failure to maintain such property in accordance
with relevant lease contracts. The Partnership has repossessed all of its
property previously leased to such airlines, and the airlines have ceased
operations. In response to the Partnership's collection efforts, the two
airlines each filed counter-claims against the Partnership in excess of the
Partnership's claims against the airlines. The General Partner believes
that the airlines' counterclaims are completely without merit, and the
General Partner will vigorously defend against such counterclaims.
The Partnership is involved as plaintiff or defendant in various other
legal actions incident to its business. Management does not believe that
any of these actions will be material to the financial condition of the
Company.
(This space intentionally left
blank.)
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(I) RESULTS OF OPERATIONS
Comparison of the PLM Equipment Growth Fund IV's (the Partnership's) Operating
Results for the Three Months Ended March 31, 1999 and 1998
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the first quarter of 1999 compared to the same period of 1998.
Gains or losses from the sale of equipment, and interest and other income and
certain expenses such as depreciation and amortization and general and
administrative expenses relating to the operating segments (see Note 7 to the
financial statements), are not included in the owned equipment operation
discussion because they are indirect in nature and not a result of operations
but the result of owning a portfolio of equipment. The following table presents
lease revenues less direct expenses by segment (in thousands of dollars):
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1999 1998
----------------------------
<S> <C> <C>
Railcars $ 636 $ 735
Trailers 210 337
Aircraft 208 281
Marine containers 104 330
Marine vessel (12 ) 136
</TABLE>
Railcars: Railcar lease revenues and direct expenses were $0.8 million and $0.2
million, respectively, for the first quarter of 1999, compared to $0.9 million
and $0.2 million, respectively, during the same period in 1998. The decrease in
railcar contribution in the first quarter of 1999 was due to the sale or
disposition of railcars in 1998 and 1999.
Trailers: Trailer lease revenues and direct expenses were $0.3 million and $0.1
million, respectively for the first quarter of 1999, compared to $0.5 million
and $0.1 million, respectively, during the same period of 1998. The decrease in
trailer contribution in the first quarter of 1999 was due to the sale or
disposition of trailers in 1999 and 1998.
Aircraft: Aircraft lease revenues and direct expenses were $0.9 million and $0.7
million, respectively, for the first quarter of 1999, compared to $0.9 million
and $0.6 million, respectively, during the same period of 1998. Direct expenses
increased due to higher costs incurred for repairs on an off-lease aircraft in
the first quarter of 1999, when compared to the same period in 1998.
Marine containers: Marine container lease revenues and direct expenses were $0.1
million and $1,000, respectively, for the first quarter of 1999, compared to
$0.3 million and $2,000, respectively, during the same period of 1998. Marine
container contributions decreased due to the disposition of containers in 1998
and 1999.
Marine vessel: Marine vessel lease revenues and direct expenses were $0.4
million and $0.4 million, respectively, for the first quarter of 1999, compared
to $0.5 million and $0.4 million, respectively, during the same period of 1998.
Lease revenue decreased in the first quarter of 1999, compared to the same
period in 1998, due to lower re-lease rates as a result of a weak bulk-carrier
vessel market.
<PAGE>
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $2.0 million for the first quarter of 1999 decreased
from $2.5 million for the same period in 1998. Significant variances are
explained as follows:
(1) A $0.3 million decrease in depreciation and amortization expenses from
1998 levels reflects the sale of certain assets during 1999 and 1998 and the use
of the double-declining balance depreciation method which results in greater
depreciation the first years an asset is owned.
(2) A $0.2 million decrease in interest expense was due to lower average
borrowings outstanding during the quarter ended March 31, 1999, compared to the
same period in 1998.
(3) The $0.1 million decrease in bad debt expenses was due to the General
Partner's evaluation of the collectibility of receivables due from certain
lessees.
(4) A $0.1 million increase in administrative expenses from 1998 levels due
to an increase in professional services.
(C) Net Loss on Disposition of Owned Equipment
The net loss on disposition of equipment for the first quarter of 1999 totaled
$0.2 million, which resulted from the sale of railcars with a net book value of
$0.7 million, for proceeds of $0.5 million. In addition, the Partnership sold or
disposed of marine containers, and trailers in the first quarter of 1999 with an
aggregate net book value of $0.2 million, for aggregate proceeds of $0.2
million. For the first quarter of 1998, net loss on disposition of equipment
totaled $0.5 million, which resulted from the sale of trailers with a net book
value of $0.9 million, for proceeds of $0.4 million. In addition, the
Partnership sold or disposed of marine containers, and railcars in the first
quarter of 1998 with an aggregate net book value of $0.1 million, for aggregate
proceeds of $0.1 million.
(D) 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 March 31,
1999 1998
----------------------------
<S> <C> <C>
Aircraft $ 137 $ 229
Marine vessel (117 ) (19 )
===================================================================================================
Equity in net income of USPEs $ 20 $ 210
===================================================================================================
</TABLE>
Aircraft: As of March 31, 1999 and 1998, the Partnership had an interest in a
trust that owns two commercial aircraft on direct finance lease. Aircraft
revenues and expenses were $0.2 million and $15,000, respectively, for the first
quarter of 1999, compared to $0.2 million and $0, respectively, during the same
period in 1998.
Marine vessel: As of March 31, 1999 and 1998, the Partnership had an interest in
an entity owning a marine vessel. Marine vessel revenues and expenses were $0.2
million and $0.3 million, respectively, for the first quarter of 1999, compared
to $0.3 million and $0.3 million, respectively, during the same period in 1998.
Lease revenue decreased in the quarter ended March 31, 1999 compared to the same
period in 1998, due to lower re-lease rates as a result of a weak bulk-carrier
vessel market.
<PAGE>
(E) Net Loss
As a result of the foregoing, the Partnership's net loss was $1.0 million for
the first quarter of 1999, compared to net loss of $0.8 million during the same
period of 1998. The Partnership's ability to operate and liquidate assets,
secure leases, and re-lease those assets whose leases expire is subject to many
factors, and the Partnership's performance in the quarter ended March 31, 1999
is not necessarily indicative of future periods. In the first quarter of 1999,
the Partnership distributed $0.9 million to the limited partners, or $0.10 per
weighted-average limited partnership unit.
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES AND LIQUIDITY
For the three months ended March 31, 1999, the Partnership generated $0.3
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 three months ended
March 31, 1999 of approximately $0.9 million) to the partners, but also used
undistributed available cash from prior periods of approximately $0.6 million.
During the three months ended March 31, 1999, the Partnership sold or disposed
of marine containers, railcars, and trailers with an aggregate net book value of
$0.9 million, for aggregate proceeds of $0.7 million.
The Partnership plans to sell equipment in the second quarter of 1999 to pay the
third annual principal payment of $8.3 million of the outstanding note payable
due on July 1, 1999.
The Partnership is in its active liquidation phase. As a result, the size of the
Partnership's remaining equipment portfolio and, in turn, the amount of net cash
flows from operations will continue to become progressively smaller as assets
are sold. Although distribution levels may be reduced, significant asset sales
may result in potential special distributions to the partners.
(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). Since 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. Also, the General Partner believes the future
cost allocable to the Partnership to become Year 2000 compliant will not be
material.
It is possible that certain of the Partnership's equipment lease portfolio may
not be Year 2000 compliant. The General Partner is currently contacting
equipment manufacturers of the Partnership's leased equipment portfolio to
assure Year 2000 compliance or to develop remediation strategies. The General
Partner does not expect that non-Year 2000 compliance of the Partnership's
leased equipment portfolio will have an adverse material impact on its financial
statements.
Some risks associated with the Year 2000 problem are beyond the ability of the
General Partner or Partnership to control, including the extent to which third
parties can address the Year 2000 problem. The General Partner is communicating
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 from 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 that third-party non-compliance will have a material adverse effect
on the Partnership's business, financial position, or results of operation.
The General Partner is currently developing a contingency plan to address the
possible failure of any systems due to the Year 2000 problems. The General
Partner anticipates these plans will be completed by September 30, 1999.
(IV) ACCOUNTING PRONOUNCEMENTS
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 June 15, 1999. As of March 31, 1999,
the General Partner is reviewing the effect this standard will have on the
Partnership's consolidated financial statements.
(V) OUTLOOK FOR THE FUTURE
The Partnership is in its active liquidation phase. The General Partner is
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. The General Partner anticipates that the
liquidation of Partnership assets will be completed by the scheduled termination
of the Partnership at the end of the year 2000.
Several factors may affect the Partnership's operating performance in 1999 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 make an evaluation to reduce the Partnership's
exposure to 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 and proceeds from
disposition of equipment to satisfy its operating requirements, maintain working
capital reserves, pay loan principal 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposure is that of currency devaluation
risk. During the first quarter of 1999, 63% of the Partnership's total lease
revenues from wholly- and partially-owned equipment came from non-United States
domiciled lessees. Most of the leases require payment in United States (U.S.)
currency. If these lessees currency devalues against the U.S. dollar, the
lessees could encounter difficulty in making the U.S. dollar denominated lease
payments.
(This space intentionally left
blank.)
<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: April 30, 1999
By: /s/ Richard K Brock
------------------------
Richard K Brock
Vice President and
Corporate Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 960
<SECURITIES> 0
<RECEIVABLES> 3,930
<ALLOWANCES> 3,124
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 80,388
<DEPRECIATION> 58,858
<TOTAL-ASSETS> 29,092
<CURRENT-LIABILITIES> 0
<BONDS> 12,750
0
0
<COMMON> 0
<OTHER-SE> 14,668
<TOTAL-LIABILITY-AND-EQUITY> 29,092
<SALES> 0
<TOTAL-REVENUES> 2,288
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,990
<LOSS-PROVISION> (2)
<INTEREST-EXPENSE> 311
<INCOME-PRETAX> (991)
<INCOME-TAX> 0
<INCOME-CONTINUING> (991)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (991)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
