UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL QUARTER ENDED JUNE 30, 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
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
(in thousands of dollars, except unit amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------------------------------------
ASSETS
<S> <C> <C>
Equipment held for operating leases, at cost $ 73,464 $ 82,278
Less accumulated depreciation (55,511) (58,674)
----------------------------------------
Net equipment 17,953 23,604
Cash and cash equivalents 4,772 778
Restricted cash 147 147
Accounts receivable, less allowance for doubtful
Accounts of $3,150 in 1999 and $3,126 in 1998 590 874
Investments in unconsolidated special-purpose entities 5,532 5,739
Deferred charges, less accumulated amortization
of $339 in 1999 and $321 in 1998 39 58
Prepaid expenses and other assets 163 50
----------------------------------------
Total assets $ 29,196 $ 31,250
========================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 397 $ 563
Due to affiliates 228 244
Lessee deposits and reserve for repairs 973 1,126
Notes payable 12,750 12,750
----------------------------------------
Total liabilities 14,348 14,683
----------------------------------------
Partners' capital:
Limited partners (8,628,420 limited partnership units
as of June 30, 1999 and December 31, 1998) 14,848 16,567
General Partner -- --
----------------------------------------
Total partners' capital 14,848 16,567
----------------------------------------
Total liabilities and partners' capital $ 29,196 $ 31,250
========================================
</TABLE>
See accompanying notes to financial statements.
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 June For the Six Months Ended June 30,
1999 1998 1999 1998
----------------------------------------------------------
REVENUES
<S> <C> <C> <C> <C>
Lease revenue $ 2,056 $ 2,644 $ 4,518 $ 5,718
Interest and other income 44 113 65 187
Net gain (loss) on disposition of equipment 2,202 (3 ) 2,007 (482)
---------------------------------------------------------------
Total revenues 4,302 2,754 6,590 5,423
---------------------------------------------------------------
EXPENSES
Depreciation and amortization 1,124 1,454 2,352 2,966
Equipment operating expenses 175 209 334 445
Repairs and maintenance 1,057 (84 ) 2,159 849
Interest expense 311 512 622 1,024
Insurance expense to affiliate -- (49 ) -- (55)
Other insurance expense 45 65 109 164
Management fees to affiliate 115 142 254 315
General and administrative expenses
to affiliates 122 153 265 303
Other general and administrative expenses 204 218 359 235
Provision for bad debt expense 26 86 24 184
---------------------------------------------------------------
Total expenses 3,179 2,706 6,478 6,430
---------------------------------------------------------------
Equity in net income (loss) of unconsolidated special-
Purpose entities (34) 82 (14) 292
---------------------------------------------------------------
Net income (loss) $ 1,089 $ 130 $ 98 $ (715)
===============================================================
PARTNERS' SHARE OF NET INCOME (LOSS)
Limited partners $ 1,043 $ 84 $ 7 $ (806)
General Partner 46 46 91 91
---------------------------------------------------------------
Total $ 1,089 $ 130 $ 98 $ (715)
===============================================================
Net income (loss) per weighted-average limited
partnership unit $ 0.12 $ 0.01 $ 0.00 $ (0.09)
===============================================================
Cash distributions $ 909 $ 908 $ 1,817 $ 1,816
===============================================================
Cash distributions per weighted-average limited
partnership unit $ 0.10 $ 0.10 $ 0.20 $ 0.20
===============================================================
</TABLE>
See accompanying notes to financial statements.
-15-
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the period from December 31, 1997 to June 30, 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 7 91 98
Cash distribution (1,726) (91) (1,817)
---------------------------------------------------------
Partner's capital as of June 30, 1999 $ 14,848 $ -- $ 14,848
=========================================================
</TABLE>
See accompanying notes to financial statements.
-16-
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS (in thousands of dollars)
<TABLE>
<CAPTION>
For the Six Months
ended June 30,
1999 1998
--------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ 98 $ (715)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 2,352 2,966
Net (gain) loss on disposition of equipment (2,007) 482
Equity in net (income) loss of unconsolidated special-purpose
Entities 14 (292)
Changes in operating assets and liabilities:
Accounts receivable, net 308 244
Prepaid expenses and other assets (113) 31
Accounts payable and accrued expenses (166) (613)
Due to affiliates (16) (14)
Lessee deposits and reserve for repairs (153) 143
--------------------------------
Net cash provided by operating activities 317 2,232
--------------------------------
INVESTING ACTIVITIES
Payments for capitalized improvements -- (6)
Proceeds from disposition of equipment 5,301 646
Distribution from liquidation of unconsolidated special-
purpose entities -- 3,470
Distribution from unconsolidated special-purpose entities 193 626
--------------------------------
Net cash provided by investing activities 5,494 4,736
--------------------------------
FINANCING ACTIVITIES
Cash distribution paid to limited partners (1,726) (1,725)
Cash distribution paid to General Partner (91) (91)
--------------------------------
Net cash used in financing activities (1,817) (1,816)
--------------------------------
Net increase in cash and cash equivalents 3,994 5,152
Cash and cash equivalents at beginning of year 778 3,650
--------------------------------
Cash and cash equivalents at end of period $ 4,772 $ 8,802
================================
SUPPLEMENTAL INFORMATION
Interest paid $ 622 $ 1,024
================================
</TABLE>
See accompanying notes to financial statements.
-17-
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 June 30, 1999 and December 31, 1998, the
statements of operations for the three and six months ended June 30, 1999
and 1998, the statements of changes in partners' capital for the period
from December 31, 1997 to June 30, 1999, and the statements of cash flows
for the six months ended June 30, 1999 and 1998. 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, 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
six months ended June 30, 1999 and 1998, cash distributions totaled $1.8
million. For the three months ended June 30, 1999 and 1998, cash
distributions totaled $0.9 million. Cash distributions to the limited
partners of $1.7 million for the six months ended June 30, 1999 and 1998,
were deemed to be a return of capital.
Cash distributions related to the results from the second quarter of 1999,
of $0.9 million, will be paid during the third quarter of 1999.
4. Transactions with General Partner and Affiliates
The balance due to affiliates as of June 30, 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 $18,000 and $9,000 were payable as of June 30, 1999 and December
31, 1998, respectively.
-18-
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees $ 11 $ 24 $ 27 $ 44
Data processing and administrative
expenses 3 6 6 11
Insurance expense (2) 5 1 7
</TABLE>
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>
June 30, December 31,
1999 1998
-------------------------------------------
<S> <C> <C>
Aircraft $ 36,268 $ 42,734
Railcars 13,509 14,752
Marine containers 10,239 11,012
Marine vessel 9,719 9,719
Trailers 3,729 4,061
-------------------------------------------
73,464 82,278
Less accumulated depreciation (55,511) (58,674)
-------------------------------------------
Net equipment $ 17,953 $ 23,604
===========================================
</TABLE>
As of June 30, 1999, all equipment was either on lease or operating in
PLM-affiliated short-term trailer rental facilities, except for one
commercial aircraft, eight railcars, and 22 marine containers, with an
aggregate net book value of $1.7 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 six months ended June 30, 1999, the Partnership sold or disposed
of an aircraft, marine containers, railcars, and trailers with an aggregate
net book value of $3.3 million, for aggregate proceeds of $5.3 million.
During the six months ended June 30, 1998, the Partnership sold or disposed
of marine containers, railcars, and trailers with an aggregate net book
value of $1.2 million, for aggregate proceeds of $0.7 million.
-19-
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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>
June 30, December 31,
1999 1998
---------------------------------------
<S> <C> <C>
35% interest in two Stage II commercial aircraft on a direct
finance lease $ 3,718 $ 3,880
50% interest in an entity owning a bulk-carrier 1,814 1,859
Net investments $ 5,532 $ 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
For the quarter ended June 30, 1999 Leasing Leasing Leasing Leasing Leasing All Other<F1>1 Total
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C>
Lease revenue $ 871 $ 775 $ 36 $ 108 $ 266 $ -- $ 2,056
Interest income and other 2 -- -- -- -- 42 44
Gain (loss) on disposition of
equipment 2,171 19 31 -- (19) -- 2,202
Total revenues 3,044 794 67 108 247 42 4,302
COSTS AND EXPENSES
Operations support 741 166 1 281 79 9 1,277
Depreciation and amortization 661 156 149 81 68 9 1,124
Interest expense -- -- -- -- -- 311 311
Management fees to affiliates 38 54 2 5 16 -- 115
General and administrative expenses 96 29 2 5 74 120 326
Provision for bad debts -- 12 -- -- 14 -- 26
Total costs and expenses 1,536 417 154 372 251 449 3,179
Equity in net income (loss) of USPEs 134 -- -- (168) -- -- (34)
Net income (loss) $ 1,642 $ 377 $ (87) $ (432) $ (4) $ (407) $ 1,089
================================================================================
Total assets as of June 30, 1999 $11,484 $5,046 $1,872 $3,670 $ 1,744 $5,380 $29,196
================================================================================
<FN>
- ---------
<F1>
1 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>
-20-
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
7. Operating Segments (continued)
<TABLE>
<CAPTION>
Marine Marine
Aircraft Railcar Container Vessel Trailer
For the quarter ended June 30, 1998 Leasing Leasing Leasing Leasing Leasing All Other<F1>1 Total
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C>
Lease revenue $ 871 $ 882 $ 145 $ 367 $ 379 $ -- $ 2,644
Interest income and other 3 -- -- -- -- 110 113
Gain (loss) on disposition of equipment -- -- 28 -- (31) -- (3)
Total revenues 874 882 173 367 348 110 2,754
COSTS AND EXPENSES
Operations support (554) 351 2 208 123 11 141
Depreciation and amortization 829 206 179 96 128 16 1,454
Interest expense -- -- -- -- -- 512 512
Management fees to affiliates 38 64 4 18 18 -- 142
General and administrative expenses 100 36 8 6 79 142 371
Provision for (recovery of) bad debts -- (27) 64 -- 49 -- 86
Total costs and expenses 413 630 257 328 397 681 2,706
Equity in net income (loss) of USPEs 143 -- -- (61) -- -- 82
Net income (loss) $ 604 $ 252 $ (84) $ (22) $ (49) $ (571) $ 130
================================================================================
Total assets as of June 30, 1998 $ 17,190 $ 6,410 $ 3,025 $ 4,295 $ 2,845 $ 9,309 $43,074
==================================================================================
Marine Marine
Aircraft Railcar Container Vessel Trailer
For the six months ended June 30, 1999 Leasing Leasing Leasing Leasing Leasing All Other<F1>1 Total
REVENUES
Lease revenue $ 1,742 $ 1,622 $ 141 $ 460 $ 553 $ -- $ 4,518
Interest income and other 4 -- -- -- -- 61 65
Gain (loss) on disposition of
equipmen 2,171 (144) 52 -- (72) -- 2,007
Total revenues 3,917 1,478 193 460 481 61 6,590
COSTS AND EXPENSES
Operations support 1,404 377 2 645 156 18 2,602
Depreciation and amortization 1,392 326 303 162 151 18 2,352
Interest expense -- -- -- -- -- 622 622
Management fees to affiliates 75 114 7 23 35 -- 254
General and administrative expenses 162 56 4 11 146 245 624
Provision for bad debts -- 6 -- -- 18 -- 24
Total costs and expenses 3,033 879 316 841 506 903 6,478
Equity in net income (loss) of USPEs 271 -- -- (285) -- -- (14)
Net income (loss) $ 1,155 $ 599 $ (123) $ (666) $ (25) $ (842) $ 98
=====================================================================================
Total assets as of June 30, 1999 $ 11,484 $ 5,046 $ 1,872 $ 3,670 $ 1,744 $ 5,380 $ 29,196
======================================================================================
<FN>
- --------
<F1>1 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>
-21-
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
7. Operating Segments (continued)
<TABLE>
<CAPTION>
Marine Marine
Aircraft Railcar Container Vessel Trailer
For the six months ended June 30, 1998 Leasing Leasing Leasing Leasing Leasing All Other<F1>1 Total
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C>
Lease revenue $ 1,742 $ 1,785 $ 477 $ 867 $ 847 $ -- $ 5,718
Interest income and other 9 -- -- -- -- 178 187
Gain (loss) on disposition of equipment (2) (9) 32 -- (503) -- (482)
Total revenues 1,749 1,776 509 867 344 178 5,423
COSTS AND EXPENSES
Operations support 36 519 4 572 253 19 1,403
Depreciation and amortization 1,657 435 365 192 284 33 2,966
Interest expense -- -- -- -- -- 1,024 1,024
Management fees to affiliates 76 127 21 43 48 -- 315
General and administrative expenses 135 68 13 11 164 147 538
Provision for (recovery of) bad debts -- (40) 64 -- 160 -- 184
Total costs and expenses 1,904 1,109 467 818 909 1,223 6,430
Equity in net income (loss) of USPEs 372 -- -- (80) -- -- 292
Net income (loss) $ 217 $ 667 $ 42 $ (31) $ (565) $(1,045) $ (715)
=====================================================================================
Total assets as of June 30, 1998 $ 17,190 $ 6,410 $ 3,025 $ 4,295 $ 2,845 $ 9,309 $ 43,074
=====================================================================================
<FN>
- --------
<F1> 1 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>
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 six months ended June 30, 1999 and 1998 was 8,628,420.
9. Contingencies
PLM International, (the Company) and various of its wholly-owned
subsidiaries 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
plaintiffs and the class certain duties due to their status as
-22-
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
9. Contingencies (continued)
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 plaintiff' 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 taken off calendar and
the district court has dismissed the petition pending settlement of the
Romei
-23-
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
9. Contingencies (continued)
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 related to the settlement of those actions (the
monetary settlement), following which the parties agreed to an additional
equitable settlement (the equitable settlement). The terms of the monetary
settlement and the equitable settlement are contained in a Stipulation of
Settlement that was filed with the court on February 12, 1999. On June 14,
1999, the parties amended the stipulation and revised certain exhibits, and
requested that the court set a preliminary approval hearing on the monetary
settlement and equitable settlement.
The monetary settlement 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 court. The
Company will pay up to $0.3 million of the monetary settlement, with the
remainder being funded by an insurance policy. The equitable settlement
provides, among other things: (a) for the extension of the operating lives
of Funds V, VI, and VII by judicial amendment to each of their partnership
agreements, such that FSI, the general partner of each such partnership, 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 is entitled to earn front-end
fees (including acquisition and lease negotiation fees) up to 20% in excess
of the compensatory limitations set forth in the NASAA Statement of Policy
by judicial amendment to the partnership agreements for Funds V, VI, and
VII; (c) for a one-time repurchase of up to 10% of the outstanding units of
Funds V, VI, and VII by the respective partnership at 80% of such
partnership's net asset value; and (d) for the deferral of a portion of
FSI's management fees until such time as certain performance thresholds
have, if ever, been met by the partnerships. The equitable settlement also
provides for payment of the equitable class attorneys' fees from
partnership funds in the event, if ever, that distributions paid to
investors in Funds V, VI, and VII 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
monetary and equitable settlements.
The preliminary approval hearing was set for and occurred on June 25, 1999.
On June 29, 1999, the court entered orders, among other things, granting
preliminary approval of the monetary and equitable settlements,
conditionally certifying the monetary and equitable settlement classes,
providing for a final fairness hearing on November 16, 1999, approving the
form and content of the notices to be sent to the monetary class and the
equitable class, and staying all claims, counterclaims, and crossclaims by
the monetary and equitable classes against defendants pending the court's
consideration of the fairness of the monetary and equitable settlements at
the final fairness hearing. The monetary settlement class (the monetary
class) consists of all investors, limited partners, assignees, or unit
holders who purchased or received by way of transfer or assignment any
units in the Partnerships between May 23, 1989 and June 29, 1999. The
equitable settlement class (the equitable class)
-24-
PLM EQUIPMENT GROWTH FUND IV
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
9. Contingencies (continued)
consists of all investors, limited partners, assignees or unit holders who
on June 29, 1999 held any units in Funds V, VI, and VII, and their assigns
and successors in interest. On June 29, 1999 the court also entered an
order preliminarily approving as to form and substance the form of
solicitation statement that is to be distributed to limited partners of
Funds V, VI, and VII in connection with the equitable settlement, following
clearance by and with such changes necessary to comply with the comments,
if any, of the Securities and Exchange Commission (SEC) in its review and
clearance procedures. The monetary and equitable class notices will be sent
to the monetary and equitable classes, respectively, following clearance by
the SEC of the solicitation statement.
The monetary settlement remains subject to certain conditions, including
but not limited to notice to the monetary class for purposes of the
monetary settlement and final approval of the monetary settlement by the
court following a final fairness hearing. The equitable settlement remains
subject to numerous conditions, including but not limited to: (a) notice to
the equitable class, (b) review and clearance by the 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) final approval of the equitable
settlement by the court following a final fairness hearing. 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
General Partner believes an unfavorable outcome from the counterclaims is
remote.
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.
10. Subsequent Events
The Partnership had a scheduled loan payment of $8.3 million due on July 1,
1999. On this date, the Partnership paid $4.0 million of the $8.3 million
scheduled principal payment. The Partnership amended the Note Agreement to
delay the date of the remaining $4.3 million principal payment on its notes
payable from July 1, 1999 to August 1, 1999. The amendment increased the
interest rate on the deferred principal payment of $4.3 million from 9.75%
per annum to 11.75% per annum. On July 30, 1999, the Partnership further
amended the note agreement to delay the scheduled remaining principal
payment of $4.3 million from August 1, 1999 to September 1, 1999. The
Partnership plans to use sale proceeds to pay the remaining principal
payment.
-25-
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 June 30, 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 second 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):
For the Three Months
Ended June 30,
1999 1998
-------------------------------
Railcars $ 609 $ 530
Trailers 187 256
Aircraft 130 1,425
Marine containers 35 143
Marine vessel (173) 159
Railcars: Railcar lease revenues and direct expenses were $0.8 million and $0.2
million, respectively, for the second quarter of 1999, compared to $0.9 million
and $0.4 million, respectively, during the same period in 1998. The decrease in
lease revenue of $0.1 million and the decrease in direct expenses of $0.1
million in the second quarter of 1999 were due to the sale or disposition of
railcars in 1998 and 1999. Furthermore, direct expenses decreased an additional
$0.1 million due to the running repairs required on certain railcars in the
fleet during the second quarter of 1998, which were not needed during the same
period in 1999.
Trailers: Trailer lease revenues and direct expenses were $0.3 million and $0.1
million, respectively for the second quarter of 1999, compared to $0.4 million
and $0.1 million, respectively, during the same period of 1998. The decrease in
trailer contribution in the second 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 second 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 second quarter of 1999, when compared to the same period in
1998.
Marine containers: Marine container lease revenues and direct expenses were
$36,000 and $1,000, respectively, for the second quarter of 1999, compared to
$0.1 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 $0.1
million and $0.3 million, respectively, for the second quarter of 1999, compared
to $0.4 million and $0.2 million, respectively, during the same period of 1998.
Lease revenue decreased $0.2 million in the second quarter of 1999, compared to
the same period in 1998, due to the marine vessel being in drydock for
approximately six weeks. During this period, the marine vessel did not earn any
revenues. In addition, lease revenue decreased $0.1 million due to lower
re-lease rates as a result of a weak bulk-carrier vessel market in the second
quarter of 1999, compared to the same period in 1998. Direct expenses increased
$0.1 million due to higher repair and maintenance expenses in the second quarter
of 1999 compared to the same period in 1998.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $1.9 million for the second quarter of 1999 decreased
from $2.6 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 June 30, 1999, compared to the
same period in 1998.
(3) A $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.
(C) Net Gain (Loss) on Disposition of Owned Equipment
The net gain on disposition of equipment for the second quarter of 1999 totaled
$2.2 million, which resulted from the sale or disposal of an aircraft, marine
containers, trailers and railcars with an aggregate net book value of $2.5
million, for proceeds of $4.7 million. For the second quarter of 1998, net loss
on disposition of equipment totaled $3,000, which resulted from the sale or
disposal of trailers and marine containers with an aggregate net book value of
$0.2 million, for proceeds of $0.2 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):
For the Three Months
Ended June 30,
1999 1998
-------------------------------
Aircraft $ 134 $ 143
Marine vessel (168) (61)
Equity in net income (loss) of USPEs $ (34) $ 82
==================================
Aircraft: As of June 30, 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 $0.1 million and $15,000, respectively, for the
second quarter of 1999, compared to $0.1 million and $0, respectively, during
the same period in 1998.
Marine vessel: As of June 30, 1999 and 1998, the Partnership had an interest in
an entity owning a marine vessel. Marine vessel revenues and expenses were $0.1
million and $0.3 million, respectively, for the second quarter of 1999, compared
to $0.3 million and $0.4 million, respectively, during the same period in 1998.
Lease revenue decreased in the second 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. Expenses decreased in the second quarter of 1999 compared to the
same period in 1998, due to lower operating and repair and maintenance expenses.
(E) Net Income
As a result of the foregoing, the Partnership's net income was $1.1 million for
the second quarter of 1999, compared to net income of $0.1 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 June 30, 1999 is
not necessarily indicative of future periods. In the second quarter of 1999, the
Partnership distributed $0.9 million to the limited partners, or $0.10 per
weighted-average limited partnership unit.
Comparison of the Partnership's Operating Results for the Six Months Ended June
30, 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 six months ended June 30,1999 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):
For the Six Months
Ended June 30,
1999 1998
-------------------------------
Railcars $ 1,245 $ 1,266
Trailers 397 593
Aircraft 338 1,706
Marine containers 139 473
Marine vessel (185) 295
Railcars: Railcar lease revenues and direct expenses were $1.6 million and $0.4
million, respectively, for the six months ended June 30, 1999, compared to $1.8
million and $0.5 million, respectively, during the same period in 1998. The
decrease in railcar contribution in the six months ended June 30, 1999 was due
to the sale or disposition of railcars in 1998 and 1999.
Trailers: Trailer lease revenues and direct expenses were $0.6 million and $0.2
million, respectively for the six months ended June 30, 1999, compared to $0.8
million and $0.3 million, respectively, during the same period of 1998. The
decrease in trailer contribution in the six months ended June 30, 1999 was due
to the sale or disposition of trailers in 1999 and 1998.
Aircraft: Aircraft lease revenues and direct expenses were $1.7 million and $1.4
million, respectively, for the six months ended June 30, 1999, compared to $1.7
million and $36,000, respectively, during the same period of 1998. Direct
expenses increased due to higher costs incurred for repairs on an off-lease
aircraft in the six months ended June 30, 1999, when compared to the same period
in 1998.
Marine containers: Marine container lease revenues and direct expenses were $0.1
million and $2,000, respectively, for the six months ended June 30, 1999,
compared to $0.5 million and $4,000, 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 $0.5
million and $0.6 million, respectively, for the six months ended June 30, 1999,
compared to $0.9 million and $0.6 million, respectively, during the same period
of 1998. Lease revenue decreased $0.2 million in the six months ended June 30,
1999, compared to the same period in 1998, due to the marine vessel being in
drydock for approximately six weeks. During this period, the marine vessel did
not earn any revenues. In addition, lease revenue decreased $0.2 million due to
lower re-lease rates as a result of a weak bulk-carrier vessel market in the six
months ended June 30, 1999, compared to the same period in 1998.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $3.9 million for the six months ended June 30, 1999
decreased from $5.0 million for the same period in 1998. Significant variances
are explained as follows:
(1) A $0.6 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 $0.4 million decrease in interest expense was due to lower average
borrowings outstanding during the six months ended June 30, 1999, compared to
the same period in 1998.
(3) A $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.
(4) A $0.1 million increase in administrative expenses from 1998 levels due
to a decrease in professional services.
(C) Net Gain (Loss) on Disposition of Owned Equipment
The net gain on disposition of equipment for the six months ended June 30, 1999
totaled $2.0 million, which resulted from the sale or disposal of an aircraft,
marine containers, trailers and railcars with an aggregate net book value of
$3.3 million, for aggregate proceeds of $5.3 million. For the six months ended
June 30, 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 with an aggregate net book value of $0.3
million, for aggregate proceeds of $0.3 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):
For the Six Months
Ended June 30,
1999 1998
-------------------------------
Aircraft $ 271 $ 372
Marine vessel (285) (80)
Equity in net income (loss) of USPEs $ (14) $ 292
==================================
Aircraft: As of June 30, 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 $0.3 million and $30,000, respectively, for the six
months ended June 30, 1999, compared to $0.4 million and $0, respectively,
during the same period in 1998.
Marine vessel: As of June 30, 1999 and 1998, the Partnership had an interest in
an entity owning a marine vessel. Marine vessel revenues and expenses were $0.4
million and $0.7 million, respectively, for the six months ended June 30, 1999,
compared to $0.7 million and $0.8 million, respectively, during the same period
in 1998. Lease revenue decreased in the six months ended June 30, 1999 compared
to the same period in 1998, due to lower re-lease rates as a result of a weak
bulk-carrier vessel market. Expenses decreased for the six months ended June 30,
1999 compared to the same period in 1998, due to lower operating and repair and
maintenance expenses.
(E) Net Income (Loss)
As a result of the foregoing, the Partnership's net income was $0.1 million for
the six months ended June 30, 1999, compared to net loss of $0.7 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 six months ended June
30, 1999 is not necessarily indicative of future periods. In the six months
ended June 30, 1999, the Partnership distributed $1.7 million to the limited
partners, or $0.20 per weighted-average limited partnership unit.
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES AND LIQUIDITY
For the six months ended June 30, 1999, the Partnership generated $0.5 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 six months ended June
30, 1999 of approximately $1.8 million) to the partners, but also used
undistributed available cash from prior periods of approximately $1.3 million.
During the six months ended June 30, 1999, the Partnership sold or disposed of
an aicraft, marine containers, railcars, and trailers with an aggregate net book
value of $3.3 million, for aggregate proceeds of $5.3 million.
The Partnership had a scheduled loan payment of $8.3 million due on July 1,
1999. On this date, the Partnership paid $4.0 million of the $8.3 million
scheduled principal payment. The Partnership amended the Note Agreement to delay
the date of the remaining $4.3 million principal payment on its notes payable
from July 1, 1999 to August 1, 1999. The amendment increased the interest rate
on the deferred principal payment of $4.3 million from 9.75% per annum to 11.75%
per annum. On July 30, 1999, the Partnership further amended the note agreement
to delay the scheduled remaining principal payment of $4.3 million from August
1, 1999 to September 1, 1999. The Partnership plans to use sale proceeds to pay
the remaining principal payment.
Lessee deposits and reserve for repairs decreased $0.1 million during the six
months ended June 30, 1999 due to the $0.2 million drydocking payment during the
first six months in 1999 offset, in part by additional accruals of $0.1 million
for the Partnership's marine vessel.
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 those of 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 possibility commonly known as the "Year 2000" or "Y2K" 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 business systems in order to
determine whether such systems will retain functionality after December 31,
1999. As of June 30, 1999, the General Partner has completed inventory,
assessment, remediation and testing stages of its Year 2000 review of its core
business information systems. Specifically, the General Partner (a) has
integrated 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
been made Year 2000 compliant. In addition, numerous other software systems
provided by vendors and service providers have been replaced with systems
represented by the vendor or service provider to be Year 2000 functional. These
systems will be fully tested September by 30, 1999 and are expected to be
compliant.
As of June 30, 1999, the costs incurred and allocated to the Fund to become Year
2000 compliant have not been material and does not anticipate any additional
Year 2000-compliant expenditures.
Some risks associated with the Year 2000 problem are beyond the ability of the
Partnership or General Partner 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
readiness of such parties and the extent to which the Partnership is vulnerable
to any third-party Year 2000 issues. As part of this process, vendors and
service providers were ranked in terms of the relative importance of the service
or product provided. All service providers and vendors who were identified as
medium to high relative importance were surveyed to determine Year 2000 status.
The General Partner has received satisfactory responses to Year 2000 readiness
inquiries from surveyed service providers and vendors.
It is possible that certain of the Partnership's equipment lease portfolio may
not be Year 2000 compliant. The General Partner has contacted equipment
manufacturers of the portion of the Partnership's leased equipment portfolio
identified as date sensitive to assure Year 2000 compliance or to develop
remediation strategies. The Partnership does not expect that non-Year 2000
compliance of its leased equipment portfolio will have an adverse material
impact on its financial statements. The General Partner has surveyed the
majority of its lessees and the majority of those surveyed have responded
satisfactorily to Year 2000 readiness inquiries.
There can be no assurance that the software systems of such parties will be
converted or made Year 2000 compliant in a timely manner. 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 has
made and will continue an ongoing effort to recognize and evaluate potential
exposure relating to third party Year 2000 noncompliance. The General Partner
will implement a contingency plan if the General Partner determines that
third-party noncompliance would 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 or vendors or service providers due to Year 2000
problems. For the purpose of such contingency planning, a reasonably likely
worst case scenarios primarily anticipate a) an inability to access systems and
data on a temporary basis resulting in possible delay in reconciliation of funds
received or payment of monies owed, or b) an inability to continuously employ
equipment assets due to temporary Year 2000 related failure of external
infrastructure necessary to the ongoing operation of the equipment. The General
Partner is evaluating whether there are additional scenarios, which have not
been identified. Contingency planning will encompass strategies up to and
including manual processes. The General Partner anticipates that these plans
will be completed by September 30, 1999.
(IV) ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) 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.
FASB Statement No. 137, "Accounting for Derivatives, Instruments, and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133, an
amendment of FASB Statement No. 133," issued in June 1999, defers the effective
date of Statement No. 133. Statement No. 133, as amended, is now effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000. As of
June 30, 1999, the General Partner is reviewing the effect SFAS No. 133 will
have on the Partnership's 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 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.
Liquidation of the Partnership's equipment and investment in USPE represents a
reduction in the size of the equipment portfolio and may result in a reduction
of contribution to the Partnership. Other factors affecting the Partnership's
contribution in 1999 and beyond include:
1. One of the Partnership's aircraft has been off-lease for approximately three
years. This aircraft required extensive repairs and maintenance and has had
difficulty being re-leased or sold. This aircraft will remain off-lease until it
is sold.
2. The decrease in demand for available marine containers has lead to declining
lease rates.
3. Depressed economic conditions in Asia have led to declining freight rates
through the early part of 1999 for drybulk vessels. The market has stabilized
and is expected to improve over the next 2-3 years in the absence of new
additional orders.
4. Railcar loading in North America has continued to be high, however a
softening in the market is expected in the second half of 1999, which may lead
to lower utilization and lower contribution to the Partnership.
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 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 six months of 1999, 61% 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.)
-26-
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
-27-
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: August 6, 1999 By: /s/ Richard K Brock
-----------------------------------------
Richard K Brock
Vice President and
Corporate Controller
-28-
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,919
<SECURITIES> 0
<RECEIVABLES> 3,740
<ALLOWANCES> 3,150
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 73,464
<DEPRECIATION> (55,511)
<TOTAL-ASSETS> 29,196
<CURRENT-LIABILITIES> 0
<BONDS> 12,750
0
0
<COMMON> 0
<OTHER-SE> 14,848
<TOTAL-LIABILITY-AND-EQUITY> 29,196
<SALES> 0
<TOTAL-REVENUES> 6,590
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,832
<LOSS-PROVISION> 24
<INTEREST-EXPENSE> 622
<INCOME-PRETAX> 98
<INCOME-TAX> 0
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<EXTRAORDINARY> 0
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