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, 1996. [ ] 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 900, 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) ASSETS June 30, December 31, 1996 1995 --------------------------------- Equipment held for operating leases $ 122,007 $ 131,783 Less accumulated depreciation (68,585 ) (73,508 ) -------------------------------- Net equipment 53,422 58,275 Cash and cash equivalents 3,546 1,236 Restricted cash 909 575 Investments in unconsolidated special purpose entities 7,093 7,380 Accounts receivable, net of allowance for doubtful accounts of $ 2,221 in 1996 and $775 in 1995 2,874 3,606 Notes receivable 85 325 Deferred charges, net of accumulated amortization of $2,174 in 1996 and $2,144 in 1995 291 334 Prepaid expenses and other assets (44 ) 111 -------------------------------- Total assets $ 68,176 $ 71,842 ================================ LIABILITIES' AND PARTNERS' CAPITAL Liabilities: Accounts payable and accrued expenses $ 1,971 $ 653 Due to affiliates 968 666 Prepaid deposits and reserve for repairs 3,561 3,248 Notes payable 30,800 30,800 -------------------------------- Total liabilities 37,300 35,367 Partners capital: Limited Partners (8,628,420 Limited Partnership Units at June 30, 1996 and 8,643,770 Limited Partnership Units at December 31, 1995) 30,876 36,475 General Partner -- -- -------------------------------- Total partners' capital 30,876 36,475 -------------------------------- Total liabilities and partners' capital $ 68,176 $ 71,842 ================================ See accompanying notes to financial statements. PLM EQUIPMENT GROWTH FUND IV (A Limited Partnership) STATEMENTS OF OPERATIONS (in thousands of dollars except per unit amounts) For the three months For the six months ended ended June 30, June 30, 1996 1995 1996 1995 ----------------------------------------------------------- Revenues: Lease revenue $ 5,242 $ 4,850 $ 9,798 $ 10,116 Interest and other income 100 107 131 197 Net gain (loss) on disposition of equipment 2,626 420 2,635 428 ---------------------------------------------------------- Total revenues 7,968 5,377 12,564 10,741 Expenses: Depreciation and amortization 2,445 2,988 4,850 6,011 Management fees to affiliate 214 234 420 519 Repairs and maintenance 2,372 589 3,660 1,047 Interest expense 750 750 1,501 1,501 Insurance expense to affiliates 54 44 95 148 Other insurance expense 127 120 264 280 Marine equipment operating expenses 486 543 1,040 1,276 General and administrative expenses to affiliates 164 102 286 238 Other general and administrative expense 218 180 456 326 Bad debt expense 599 419 1,508 383 Loss on revaluation of equipment -- -- -- 417 ---------------------------------------------------------- ---------------------------------------------------------- Total expenses 7,429 5,969 14,080 12,146 ---------------------------------------------------------- Equity in net loss of unconsolidated special purpose entities (123 ) -- (270 ) -- ---------------------------------------------------------- Net loss $ 416 $ (592 ) $ (1,786 ) $ (1,405 ) ========================================================== Partners' share of net (loss) income: Limited Partners $ 325 $ (672 ) $ (1,968 ) $ (1,553 ) General Partner 91 80 182 148 ---------------------------------------------------------- Total $ 416 $ (592 ) $ (1,786 ) $ (1,405 ) ========================================================== Net loss per Depositary Unit (8,628,420 Units at June 30, 1996 and 8,643,903 Units at June 30, 1995 $ 0.04 $ (0.08 ) $ (0.23 ) $ (0.18 ) ========================================================== Cash distributions $ 1,819 $ 1,592 $ 3,637 $ 2,998 ========================================================== Cash distributions per Depositary Unit $ 0.20 $ 0.18 $ 0.40 $ 0.33 ========================================================== See accompanying notes to financial statements. PLM EQUIPMENT GROWTH FUND IV (A Limited Partnership) STATEMENT OF CHANGES IN PARTNERS' CAPITAL For the year ended December 31, 1994 and the six months ended June 30, 1996 (in thousands of dollars) Limited General Partners Partner Total ----------------------------------------------------- Partners' capital at December 31, 1994 $ 46,776 $ -- $ 46,776 Net income (loss) (3,930 ) 319 (3,611 ) Cash distributions (6,124 ) (319 ) (6,443 ) Repurchase of Depositary Units (247 ) -- (247 ) ---------------------------------------------------- Partners' capital at December 31, 1995 36,475 -- 36,475 Net income (loss) (1,968 ) 182 (1,786 ) Cash distributions (3,455 ) (182 ) (3,637 ) Repurchase of Depositary Units (176 ) -- (176 ) ---------------------------------------------------- Partner's capital at June 30, 1996 $ 30,876 $ -- $ 30,876 ==================================================== See accompanying notes to financial statements. PLM EQUIPMENT GROWTH FUND IV (A Limited Partnership) STATEMENTS OF CASH FLOWS (in thousands) For the six months ended June 30, 1996 1995 ------------------------------- Cash flows from operating activities: Net loss $ (1,786 ) $ (1,405 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 4,850 6,011 Net gain on disposition of equipment (2,635 ) (428 ) Loss on revaluation of equipment -- 417 Cash distributions from unconsolidated special purpose entities in excess of income 287 -- Changes in operating assets and liabilities: Restricted cash (334 ) -- Accounts and notes receivable, net 972 (532 ) Prepaid expenses and other assets 155 54 Due to affiliates 302 15 Accounts payable and accrued expenses 1,318 316 Prepaid deposits and reserve for repairs 323 (491 ) ------------------------------- Net cash provided by operating activities 3,452 3,957 ------------------------------- Investing activities: Purchase of equipment and capitalized repairs (5,530 ) (1,337 ) Payments of acquisition fees to affiliates (247 ) (47 ) Payments of lease negotiation fees to affiliates (12 ) (8 ) Proceeds from disposition of equipment 8,460 4,312 ------------------------------- Net cash provided by (used in) investing activities 2,671 2,920 ------------------------------- Financing activities: Repurchase of Limited Partnership Units (176 ) (248 ) Cash distributions paid to Limited Partners (3,455 ) (2,850 ) Cash distributions paid to General Partner (182 ) (148 ) ------------------------------- ------------------------------- Net cash used in financing activities (3,813 ) (3,246 ) ------------------------------- Cash and cash equivalents: Net increase (decrease) in cash and cash equivalents 2,310 3,631 Cash and cash equivalents at beginning of period 1,236 5,629 ------------------------------- Cash and cash equivalents at end of period $ 3,546 $ 9,260 =============================== Supplemental information: Interest paid $ 1,501 $ 1,501 =============================== See accompanying notes to financial statements. PLM EQUIPMENT GROWTH FUND IV (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 1996 1. Opinion of Management In the opinion of the management of PLM Financial Services, Inc., the General Partner, the accompanying unaudited financial statements contain all adjustments necessary, consisting primarily of normal recurring accruals, to present fairly the financial position of PLM Equipment Growth Fund IV (the "Partnership") as of June 30, 1996, the statement of operations for the three and six months ended June 30, 1996 and 1995, the statement of changes in Partners' capital for the year ended December 31, 1995, and the six months ended June 30, 1996, and the statement of cash flows for the six months ended June 30, 1996 and 1995. 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, 1995, on file at the Securities and Exchange Commission. 2. Investments in Unconsolidated Special Purpose Entities Prior to 1996, the Partnership accounted for operating activities associated with joint ownership of transportation equipment as undivided interests, including its proportionate share of each asset with similar wholly-owned assets in its financial statements. Under generally accepted accounting principles, the effects of such activities, if material, should be reported using the equity method of accounting. Therefore, effective January 1, 1996, the Partnership adopted the equity method to account for its investment in such jointly-held assets. The principle differences between the previous accounting method and the equity method relate to the presentation of activities relating to these assets in the statement of operations. Whereas, under equity accounting the Partnership's proportionate share is presented as a single net amount, "Equity in net income (loss) of unconsolidated special purpose entities", under the previous method, the Partnership's income statement reflected its proportionate share of each individual item of revenue and expense. Accordingly, the effect of adopting the equity method of accounting has no cumulative effect on previously reported partner's capital or on the Partnership's net income (loss) for the period of adoption. Because the effects on previously issued financial statements of applying the equity method of accounting to investments in jointly-owned assets are not considered to be material to such financial statements taken as a whole, previously issued financial statements have not been restated. However, certain items have been reclassified in the previously issued balance sheet to conform to the current period presentation. The net investments in unconsolidated special purpose entities include the following jointly-owned equipment (and related assets and liabilities) (in thousands): June 30, December 31, 1996 1995 ------------------------------- 50% interest in a Bulk Carrier $ 3,729 $ 3,458 14% interest in a Trust owning seven commercial aircraft 3,364 3,922 =============================== Net investments $ 7,093 $ 7,380 =============================== PLM EQUIPMENT GROWTH FUND IV (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 1996 3. Equipment Owned equipment held for operating leases is stated at cost. Equipment held for sale is stated at the lower of the equipment's depreciated cost or net realizable value and is subject to a pending contract for sale. Components of owned equipment are as follows (in thousands): June 30, December 31, 1996 1995 --------------------------------- Equipment held for operating leases: Rail equipment $ 14,864 $ 14,907 Marine containers 16,339 17,355 Marine vessels 26,980 26,980 Aircraft 56,859 51,111 Trailers 6,965 6,944 Mobile offshore drilling unit -- 14,486 --------------------------------- 122,007 131,783 Less accumulated depreciation (68,585 ) (73,508 ) --------------------------------- Net equipment $ 53,422 $ 58,275 ================================= Revenues are earned by placing the equipment under operating leases which are generally billed monthly or quarterly. Certain of the Partnership's marine vessels and marine containers are leased to operators of utilization-type leasing pools which include equipment owned by unaffiliated parties. In such instances revenues received by the Partnership consist of a specified percentage of revenues generated by leasing the equipment to sublessees, after deducting certain direct operating expenses of the pooled equipment. Rents for railcars are based on mileage traveled or a fixed rate; rents for all other equipment are based on fixed rates. As of June 30, 1996, all equipment was either on lease or operating in PLM-affiliated short-term trailer rental facilities, except for one commercial aircraft, two railcars, and 228 marine containers. The net carrying value of equipment off-lease was $5.7 million at June 30, 1996. At December 31, 1995, 62 containers and one commuter aircraft were off-lease with a net carrying value of $4.8 million. During the six months ended June 30, 1996, the Partnership acquired a Dash 8-300 aircraft for $5.5 million and paid acquisition and lease negotiation fees of $0.2 million to PLM Transportation Equipment Corporation (TEC), a wholly-owned subsidiary of the General Partner. During the six months ended June 30, 1996, the Partnership sold or disposed of a mobile offshore drilling unit (rig), 166 marine containers and two railcars with an aggregate net book value of $5.8 million for aggregate proceeds of $8.4 million. During the six months ended June 30, 1995, the Partnership disposed of 166 marine containers and two aircraft with an aggregate net book value of $3.9 million for proceeds of $4.3 million. PLM EQUIPMENT GROWTH FUND IV (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 1996 4. Cash Distribution Cash distributions are recorded when paid and totaled $3.6 million and $3.0 million for the six months ended June 30, 1996 and 1995, respectively, and $1.8 million and $1.6 million for the three months ended June 30, 1996 and 1995, respectively. Cash distributions related to the second quarter results of $1.6 million will be paid on August 15, 1996, depending on whether the individual unitholder elected to receive a monthly or quarterly distribution check. Cash distributions to unitholders in excess of net income are deemed to be a return of capital. All distributions to limited partners for the six months ended June 30, 1996 and 1995, were deemed to be a return of capital. 5. Debt The General Partner has entered into a joint $35 million credit facility (the "Committed Bridge Facility") on behalf of the Partnership, PLM Equipment Growth Fund III, PLM Equipment Growth Fund V, PLM Equipment Growth Fund VI, PLM Equipment Growth & Income Fund VII and Professional Lease Management Income fund I ("Fund I"), all affiliated investment programs, TEC Acquisub, Inc. ("TECAI"), an indirect wholly-owned subsidiary of the General Partner, and American Finance Group, Inc. ("AFG"), a subsidiary of PLM International, which may be used to provide interim financing of up to (i) 70% of the aggregate book value or 50% of the aggregate net fair market value of eligible equipment owned by an affiliate plus (ii) 50% of unrestricted cash held by the borrower. The Committed Bridge Facility became available on December 20, 1993, and was amended and restated in June of 1996 to expire on May 23, 1997. The Committed Bridge Facility also provides for a $5 million Letter of Credit Facility for the eligible borrowers. Outstanding borrowings by Fund I, TECAI, AFG or PLM Equipment Growth Funds III through VII reduce the amount available to each other under the Committed Bridge Facility. Individual borrowings may be outstanding for no more than 179 days, with all advances due no later than May 23, 1997. The Committed Bridge Facility prohibits the Partnership from incurring any additional indebtedness. Interest accrues at either the prime rate or adjusted LIBOR plus 2.5% at the borrowers option and is set at the time of an advance of funds. Borrowings by the Partnership are guaranteed by the General Partner. As of June 30, 1996, PLM Equipment Growth Fund IV had $9 million in outstanding borrowings under the Committed Bridge Facility, and TECAI had $24.8 million. Neither the Partnership, AFG, Fund I nor the other programs had any outstanding borrowings. Due to the loan covenants of the senior debt, the Partnership cannot access this line of credit at this time. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (I) RESULTS OF OPERATIONS Comparison of the Partnership's Operating Results for the Three Months Ended June 30, 1996 and 1995 (A) Owned equipment operations Lease revenues less direct expenses (defined as repairs and maintenance, marine equipment operating, and asset specific insurance expenses) on owned equipment decreased during the second quarter of 1996 when compared to the same quarter of 1995. The following table presents lease revenues less direct expenses by owned equipment type (in thousands): For the three months ended June 30, 1996 1995 ---------------------------- Aircraft $ (198 ) $ 1,449 Marine vessels 1,062 533 Trailers 423 104 Rail equipment 406 725 Marine containers 464 414 Mobile offshore drilling unit 45 44 Aircraft: Aircraft lease revenues and direct expenses were $1.3 million and $1.5 million, respectively, for second quarter of 1996, compared to $1.5 million and $0.1 million, respectively, during the same quarter of 1995. The decrease in aircraft contribution was due to the sale of two aircraft in the second quarter of 1995. Further net loss in the second quarter of 1996, of $1.3 million was due to repairs needed on another aircraft before it can be re-leased; Marine vessels: Marine vessel lease revenues and direct expenses were $2.0 million and $1.0 million respectively, for the second quarter of 1996, compared to $1.5 million and $1.0 million, respectively, during the same quarter of 1995. The increase was due to the higher profit sharing revenue earned on a marine vessel in the second quarter of 1996 compared to the same period in 1995; Trailers: Trailer lease revenues and direct expenses were $0.5 million and $0.1 million, respectively, for the second quarter of 1996, compared to $0.2 million and $0.1 million, respectively, during the same quarter of 1995. The increase was due to the addition of 333 trailers in the first nine months of 1995; Rail equipment: Railcar lease revenues and direct expenses were $0.9 million and $0.5 million, respectively, for the second quarter of 1996, compared to $0.9 million and $0.2 million, respectively, during the same quarter of 1995. Although the railcar fleet remained relatively the same size for both quarters, the decrease in railcar contribution resulted from running repairs required on certain of the railcars in the fleet during 1996 which were not needed during 1995; Marine containers: Marine container lease revenues were $0.5 million and $0.4 million, for the second quarter of 1996 and 1995, respectively. Although the number of marine containers owned by the Partnership has been declining over the past twelve months due to sales and dispositions, revenues have increased slightly due to a group of containers which earned higher revenues in the second quarter of 1996 compared to the same period in 1995; Mobile offshore drilling unit (rig): Rig lease revenues remained relatively the same from the second quarter of 1996 compared to the same quarter in 1995. (B) Indirect expenses related to owned equipment operations Total indirect expenses of $4.4 million for the quarter ended June 30, 1996, decreased from $4.5 million for the same period in 1995. The variances are explained as follows: (a) A $0.3 million decrease in depreciation and amortization expenses from 1995 levels reflecting the sale of certain assets during 1996 and 1995; (b) A $0.2 million increase in bad debt expense reflecting the General Partner's evaluation of the collectibility of receivables due from two aircraft lessees that encountered financial difficulties; (C) Net gain on disposition of owned equipment Net gain on disposition of equipment for the second quarter of 1996 totaled $2.6 million which resulted from the sale or disposal of 79 marine containers, one railcar, and a mobile offshore drilling unit with an aggregate net book value of $5.6 million for aggregate proceeds of $8.2 million. For the second quarter of 1995, the $0.4 million net gain on disposition of equipment resulted from the sale or disposal of 99 marine containers, and two aircraft with an aggregate net book value of $3.7 million, for aggregate proceeds of $4.1 million. (D) Equity in net loss of unconsolidated special purpose entities represents net loss generated from the operation of jointly-owned assets accounted for under the equity method (see Note 2 to the financial statements). For the three months ended June 30, 1996 1995 ---------------------------- Aircraft $ (74 ) $ -- Marine vessels (49 ) 73 Aircraft: As of June 30, 1996, the Partnership owned a 14% interest in a trust consisting of seven 737-200A commercial aircraft. This investment was acquired in the third quarter of 1995; Marine vessel: As of June 30, 1996, the Partnership had a 50% interest in a marine vessel. At the end of 1995, this marine vessel switched from a bare-boat charter to a time charter. Time charters have slightly higher revenues associated with them since the owner pays for costs, such as operating costs, normally borne by the lessees under bare-boat charters. (E) Net Income (loss) As a result of the foregoing, the Partnership's net income of $0.4 million for the second quarter of 1996, increased from net loss of $0.6 million during the same period in 1995. The Partnership's ability to operate and liquidate assets, secure leases, and re-lease those assets whose leases expire during the duration of the Partnership is subject to many factors and the Partnership's performance in the second quarter of 1996 is not necessarily indicative of future periods. In the second quarter of 1996, the Partnership distributed $1.7 million to the Limited Partners, or $0.20 per Depositary Unit. Comparison of the Partnership's Operating Results for the Six Months Ended June 30, 1996 and 1995 (A) Owned equipment operations Lease revenues less direct expenses (defined as repairs and maintenance, marine equipment operating, and asset specific insurance expenses) on owned equipment decreased during the six months ended June 30, 1996 when compared to the same period of 1995. The following table presents lease revenues less direct expenses by owned equipment type (in thousands): For the six months ended June 30, 1996 1995 ---------------------------- Aircraft $ 326 $ 3,204 Marine vessels 1,497 1,210 Trailers 861 239 Rail equipment 1,149 1,465 Marine containers 773 716 Mobile offshore drilling unit 132 77 Aircraft: Aircraft lease revenues and direct expenses were $2.6 million and $2.3 million, respectively, for the six months ended June 30, 1996, compared to $3.3 million and $0.1 million, respectively, during the same period of 1995. The decrease in revenue was due to the sale of two aircraft in 1995. Direct expenses increased due to the overhaul of four engines on an aircraft that has been off-lease since the end of 1994, and the repairs needed on another aircraft before it can be re-leased; Marine vessels: Marine vessel lease revenues and direct expenses were $3.4 million and $1.9 million, respectively, for the six months ended June 30, 1996, compared to $3.2 million and $2.0 million, respectively, during the same period of 1995. The increase was due to the higher profit sharing revenue earned on a marine vessel in the six months ended June 30, 1996 compared to same period in 1995. Voyage charters are short-term leases lasting the duration of specific voyages, typically 30 to 45 days. Voyage charters have higher revenues associated with them since the owner pays for costs, such as bunkers and port costs, normally borne by the lessees under time or bare-boat charters. To position the Partnership's marine vessel fleet for a potential upturn in the marine vessel market, the Partnership has entered some of its marine vessels into voyage charters and plans to enter into longer-term contracts as the market improves; Trailers: Trailer lease revenues and direct expenses were $1.1 million and $0.2 million, respectively, for the six months ended June 30, 1996, compared to $0.3 million and $0.1 million, respectively, during the same period of 1995. The increase in lease revenues was due to the addition of 333 trailers in the first nine months of 1995; Rail equipment: Railcar lease revenues and direct expenses were $1.8 million and $0.7 million, respectively, for the six months ended June 30, 1996, compared to $1.8 million and $0.3 million, respectively, during the same period of 1995. Although the railcar fleet remained relatively the same size for both periods, the decrease in railcar contribution resulted from running repairs required on certain of the railcars in the fleet during 1996 which were not needed during 1995; Marine containers: Marine container lease revenues were $0.8 million and $0.7 million, for the six months ended June 30, 1996 and 1995, respectively. Although the number of marine containers owned by the Partnership has been declining over the past twelve months due to sales and dispositions, revenues have increased slightly due to a group of containers which earned higher revenues in the six months ended June 30, 1996 compared to the same period in 1995; Mobile offshore drilling unit (rig): Rig lease revenues remained relatively the same for the six months ended June 30, 1996, compared to the same period in 1995. (B) Indirect expenses related to owned equipment operations Total indirect expenses of $9.0 million for the six months ended June 30, 1996, increased from $8.6 million for the same period in 1995. The variances are explained as follows: (a) A $1.1 million increase in bad debt expense reflecting the General Partner's evaluation of the collectibility of receivables due from two aircraft lessees that encountered financial difficulties; (b) A $0.1 million increase in general and administrative expenses from 1995 levels resulting from the increased administrative costs associated with the short-term rental facilities due to additional trailers now operating in the facilities in the first six months of 1996 compared to the same period in 1995; (c) A $0.8 million decrease in depreciation and amortization expenses from 1995 levels reflecting the sale of certain assets during 1996 and 1995; (d) A $0.1 million decrease in management fees to affiliates, reflecting the lower levels of lease revenues in the six months ended June 30, 1996, as compared to the same period in 1995. Management fees are calculated as a monthly fee equal to the lesser of (i) the fees which would be charged by an independent third party for similar services for similar equipment or (ii) the sum of (A) 5% of the Gross Lease Revenues attributable to equipment which is subject to Operating Leases, and (B) 2% of the Gross Lease Revenues attributable to Equipment which is subject to Full Payout Net leases, and (C) 7% of the Gross Lease Revenues attributable to Equipment, if any, which was subject to per diem leasing arrangements and thus is operated by the Partnership; (e) Loss on revaluation of equipment of $0.4 million in 1995 resulted from the reduction of the net book value of an aircraft to its estimated net realizable value. This aircraft was sold in the second quarter of 1995. There was no loss on revaluation of equipment in the six months ended June 30, 1996. (C) Net gain on disposition of owned equipment Net gain on disposition of equipment for the six months ended June 30, 1996 totaled $2.6 million which resulted from the sale or disposal of 166 marine containers, two railcars and a mobile offshore drilling unit, with an aggregate net book value of $5.8 million for aggregate proceeds of $8.4 million. For the six months ended June 30, 1995, the $0.4 million net gain on disposition of equipment resulted from the sale or disposal of 166 marine containers, and two aircraft with an aggregate net book value of $3.9 million, for aggregate proceeds of $4.3 million. (D) Interest and other income Interest and other income decreased $0.1 million during the six months ended June 30, 1996 due primarily to lower cash balances available for investments when compared to the same period of 1995. (E) Equity in net loss of unconsolidated special purpose entities represents net loss generated from the operation of jointly-owned assets accounted for under the equity method (see Note 2 to the financial statements). For the six months ended June 30, 1996 1995 ---------------------------- Aircraft $ (139 ) $ -- Marine vessels (131 ) 137 Aircraft: As of June 30, 1996, the Partnership owned a 14% interest in a trust consisting of seven 737-200A commercial aircraft. This investment was acquired in the third quarter of 1995; Marine vessel: As of June 30, 1996, the Partnership had a 50% interest in a marine vessel. At the end of 1995 this marine vessel switched from a bare-boat charter to a time charter. Time charters have slightly higher revenues associated with them since the owner pays for costs, such as operating costs, normally borne by the lessees under bare-boat charters. In addition, lease revenue decreased slightly as a result of this marine vessel being off-lease for 17 to 19 days in the first quarter of 1996 due to scheduled drydocking repairs. (F) Net Loss As a result of the foregoing, the Partnership's net loss of $1.8 million for the six months ended June 30, 1996, decreased from net loss of $1.4 million during the same period in 1995. The Partnership's ability to operate and liquidate assets, secure leases, and re-lease those assets whose leases expire during the duration of the Partnership is subject to many factors and the Partnership's performance in the first quarter 1996 is not necessarily indicative of future periods. In the six months ended June 30, 1996, the Partnership distributed $3.4 million to the Unitholders, or $0.40 per Depositary Unit. (II)FINANCIAL CONDITION - CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS The General Partner purchased the Partnership's initial equipment portfolio with capital raised from its initial equity offering and permanent debt financing. No further capital contributions from original partners are permitted under the terms of the Partnership's Limited Partnership Agreement. In addition the Partnership, under its current loan agreement, does not have the capacity to incur additional debt. The Partnership relies on operating cash flow to meet its operating obligations, make cash distributions to partners, and increase the Partnership's equipment portfolio with any remaining available surplus cash. The Partnership has one loan outstanding totaling $30.8 million. This loan is due in three yearly principal payments of $8.2 million starting July 1, 1997, and one final payment of $6.2 million on July 1, 2000. The interest on the loan is fixed at 9.75%. The loan agreement requires the Partnership to a certain minimum net worth ratio based on 33.33% of the fair market value of equipment plus cash. Current market conditions have resulted in decreasing market values for the Partnership's equipment portfolio, however, at June 30,1996, the Partnership was in compliance with the debt covenants. The General Partner has entered into a joint $35 million credit facility (the "Committed Bridge Facility") on behalf of the Partnership, PLM Equipment Growth Fund III, PLM Equipment Growth Fund VI, PLM Equipment Growth Fund V, PLM Equipment Growth & Income Fund VII Professional Lease Management Income fund I ("Fund I"), all affiliated investment programs, and TEC Acquisub, Inc. ("TECAI"), an indirect wholly-owned subsidiary of the General Partner, American Finance Group, Inc. ("AFG"), a subsidiary of PLM International, which may be used to provide interim financing of up to (i) 70% of the aggregate book value or 50% of the aggregate net fair market value of eligible equipment owned by an affiliate plus (ii) 50% of unrestricted cash held by the borrower. The Committed Bridge Facility became available on December 20, 1993, and was amended and restated in June 1996 to expire on May 23, 1997. The Committed Bridge Facility also provides for a $5 million Letter of Credit Facility for the eligible borrowers. Outstanding borrowings by Fund I, TECAI, AFG or PLM Equipment Growth Funds III through VII reduce the amount available to each other under the Committed Bridge Facility. Individual borrowings may be outstanding for no more than 179 days, with all advances due no later than May 23, 1997. The Committed Bridge Facility prohibits the Partnership from incurring any additional indebtedness. Interest accrues at either the prime rate or adjusted LIBOR plus 2.5% at the borrowers option and is set at the time of an advance of funds. Borrowings by the Partnership are guaranteed by the General Partner. As of August 9, 1996, PLM Equipment Growth Fund VI had $9 million in outstanding borrowings under the Committed Bridge Facility, and TECAI had $23.9 million. Neither the Partnership, AFG, Fund I nor the other programs had any outstanding borrowings. Due to the loan covenants of the senior debt, the Partnership cannot access this line of credit at this time. (III) REDEMPTION OF LIMITED PARTNERSHIP UNITS Beginning January 1, 1993, and annually thereafter the Partnership was obligated under certain conditions to redeem up to 2% of the outstanding Depositary Units ("Units") each year. The purchase price offered by the Partnership for the outstanding Units is equal to 110% of the unrecovered principal attributable to the Units. Unrecovered principal for any Unit will be equal to the excess of (i) the capital contribution attributable to the Unit over (ii) the distributions from any source paid with respect to the Unit. At June 30, 1996, the Partnership had repurchased 15,350 units for a total repurchase price of $0.2 million. These units repurchased during the six months ended June 30, 1996 were a portion of the units identified for repurchase at December 31, 1995. From inception through June 30, 1996, the Partnership has repurchased 121,580 units for a total repurchase price of $1.6 million. (IV) TRENDS 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. Throughout 1995 and the first part of 1996, market conditions, supply and demand equilibrium, and other factors varied in several markets. In the marine container and refrigerated over-the-road trailer markets, oversupply conditions, industry consolidations, and other factors resulted in falling rates and lower returns. In the dry over-the-road trailer markets, strong demand and a backlog of new equipment deliveries produced high utilization and returns. The marine vessel, rail, and mobile offshore drilling unit markets could be generally categorized by increasing rates as the demand for equipment is increasing faster than new additions net of retirements. Finally, demand for narrowbody Stage II aircraft, such as those owned by the Partnership, has increased as expected savings from newer narrowbody aircraft have not materialized and deliveries of the newer aircraft have slowed down. These trends are expected to continue for the near term. These different markets have had individual effects on the performance of Partnership equipment - in some cases resulting in declining performance, and in others, in improved performance. 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, governmental or other regulations, and others. 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 continuously 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. Alternatively, the General Partner may make a determination to enter equipment markets in which it perceives opportunities to profit from supply-demand instabilities or other market imperfections. The Partnership intends to use excess cash flow, if any, after payment of expenses, loan principal, and cash distributions to acquire additional equipment during the first seven years of Partnership operations. The General Partner believes these acquisitions may cause the Partnership to generate additional earnings and cash flow for the Partnership. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None. (b) Reports on Form 8-K None. Pursuant to the requirements of the Securities 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 9, 1996 By: /s/ David Davis ------------------------------ David Davis Vice President and Corporate Controller