UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------- FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal quarter ended September 30, 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 Identification No.) One Market, Steuart Street Tower, Suite 800, San Francisco, CA 94105-1301 (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code (415) 974-1399 ----------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No PLM EQUIPMENT GROWTH FUND IV (A Limited Partnership) BALANCE SHEETS (in thousands of dollars) ASSETS September 30, December 31, 1996 1995 ------------------------------------------- Equipment held for operating leases $ 121,577 $ 131,783 Less accumulated depreciation (70,768 ) (73,508 ) ------------------------------------------ Net equipment 50,809 58,275 Cash and cash equivalents 4,265 1,236 Restricted cash 675 575 Investments in unconsolidated special purpose entities 6,257 7,380 Accounts receivable, net of allowance for doubtful accounts of $2,151 in 1996 and $775 in 1995 2,409 3,606 Notes receivable 58 325 Deferred charges, net of accumulated amortization of $2,217 in 1996 and $2,144 in 1995 248 334 Prepaid expenses and other assets 36 111 ------------------------------------------ Total assets $ 64,757 $ 71,842 ========================================== Liabilities: Accounts payable and accrued expenses $ 1,479 $ 653 Due to affiliates 548 666 Prepaid deposits and reserve for repairs 3,525 3,248 Notes payable 30,800 30,800 ------------------------------------------ Total liabilities 36,352 35,367 Partners capital: Limited Partners (8,628,420 Limited Partnership Units at September 30, 1996 and 8,643,770 Limited Partnership Units at December 31, 1995) 28,405 36,475 General Partner -- -- ------------------------------------------ Total partners' capital 28,405 36,475 ------------------------------------------ Total liabilities and partners' capital $ 64,757 $ 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 nine months ended September 30, ended September 30, 1996 1995 1996 1995 -------------------------------------------------------------- Revenues: Lease revenue $ 4,619 $ 4,927 $ 14,417 $ 15,043 Interest and other income 58 124 189 321 Net gain (loss) on disposition of equipment (9 ) 87 2,626 515 -------------------------------------------------------------- Total revenues 4,668 5,138 17,232 15,879 Expenses: Depreciation and amortization 2,513 3,141 7,363 9,152 Management fees to affiliate 239 287 659 806 Repairs and maintenance 739 777 4,399 1,824 Interest expense 751 909 2,252 2,410 Insurance expense to affiliates 47 60 142 208 Other insurance expense 133 74 397 354 Marine equipment operating expenses 557 572 1,597 1,848 General and administrative expenses to affiliates 176 119 462 357 Other general and administrative expense 162 199 618 525 Provision for (recovery of) bad debt expense (70 ) (100 ) 1,438 283 Loss on revaluation of equipment -- -- -- 417 -------------------------------------------------------------- -------------------------------------------------------------- Total expenses 5,247 6,038 19,327 18,184 -------------------------------------------------------------- Equity in net loss of unconsolidated special purpose entities (74 ) -- (344 ) -- -------------------------------------------------------------- Net loss $ (653 ) $ (900 ) $ (2,439 ) $ (2,305 ) ============================================================== Partners' share of net (loss) income: Limited Partners $ (744 ) $ (980 ) $ (2,712 ) $ (2,533 ) General Partner 91 80 273 228 -------------------------------------------------------------- Total $ (653 ) $ (900 ) $ (2,439 ) $ (2,305 ) ============================================================== Net loss per Depositary Unit (8,628,420 Units at September 30, 1996 and 8,643,903 Units at September 30, 1995 $ (0.09 ) $ (0.11 ) $ (0.31 ) $ (0.29 ) ============================================================== Cash distributions $ 1,818 $ 1,593 $ 5,455 $ 4,591 ============================================================== Cash distributions per Depositary Unit $ 0.20 $ 0.18 $ 0.60 $ 0.50 ============================================================== 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 nine months ended September 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) (2,712 ) 273 (2,439 ) Cash distributions (5,182 ) (273 ) (5,455 ) Repurchase of Depositary Units (176 ) -- (176 ) ---------------------------------------------------- Partner's capital at September 30, 1996 $ 28,405 $ -- $ 28,405 ==================================================== See accompanying notes to financial statements. PLM EQUIPMENT GROWTH FUND IV (A Limited Partnership) STATEMENTS OF CASH FLOWS (in thousands) For the nine months ended September 30, 1996 1995 -------------------------------- Cash flows from operating activities: Net loss $ (2,439 ) $ (2,305 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 7,363 9,152 Net gain on disposition of equipment (2,626 ) (515 ) Loss on revaluation of equipment -- 417 Cash distribution from unconsolidated special purpose entities in excess of loss 1,123 -- Changes in operating assets and liabilities: Restricted cash (100 ) -- Accounts and notes receivable, net 1,464 (1,268 ) Prepaid expenses and other assets 75 77 Due to affiliates (118 ) 32 Accounts payable and accrued expenses 826 564 Prepaid deposits and reserve for repairs 286 (126 ) -------------------------------- Net cash provided by operating activities 5,854 6,028 -------------------------------- Investing activities: Purchase of equipment and capitalized repairs (5,537 ) (10,301 ) Payments of acquisition fees to affiliates (247 ) (379 ) Payments of lease negotiation fees to affiliates (12 ) (84 ) Proceeds from disposition of equipment 8,602 6,049 -------------------------------- Net cash provided by (used in) investing activities 2,806 (4,715 ) -------------------------------- Financing activities: Repurchase of Limited Partnership Units (176 ) (245 ) Cash distributions paid to Limited Partners (5,182 ) (4,363 ) Cash distributions paid to General Partner (273 ) (228 ) -------------------------------- -------------------------------- Net cash used in financing activities (5,631 ) (4,836 ) -------------------------------- Cash and cash equivalents: Net increase (decrease) in cash and cash equivalents 3,029 (3,523 ) Cash and cash equivalents at beginning of period 1,236 5,629 -------------------------------- Cash and cash equivalents at end of period $ 4,265 $ 2,106 ================================ Supplemental information: Interest paid $ 2,252 $ 2,252 ================================ See accompanying notes to financial statements. PLM EQUIPMENT GROWTH FUND IV (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS September 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 September 30, 1996, the statement of operations for the three and nine months ended September 30, 1996 and 1995, the statement of changes in Partners' capital for the year ended December 31, 1995, and the nine months ended September 30, 1996, and the statement of cash flows for the nine months ended September 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 method of accounting for 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): September 30, December 31, 1996 1995 ---------------------------------- 50% interest in a Bulk Carrier $ 3,194 $ 3,458 14% interest in a Trust owning seven commercial aircraft (see note below) -- 3,922 17% interest in a Trust owning six commercial aircraft (see note below) 3,063 -- ================================== Net investments $ 6,257 $ 7,380 ================================== PLM EQUIPMENT GROWTH FUND IV (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS September 30, 1996 2. Investments in Unconsolidated Special Purpose Entities (continued) The Partnership has a beneficial interest in one certain unconsolidated special purpose entity that owns multiple aircraft (the Trusts). This Trust contains provisions, under certain circumstances, for allocating specific aircraft to the beneficial owners. During September 1996, PLM Equipment Growth Fund V, an affiliated partnership which also has a beneficial interest in the Trust, renegotiated its senior loan agreement and was required, for loan collateral purposes, to withdraw the aircraft designated to it from the Trust. The result was to restate the percentage ownership of the remaining beneficial owners of the Trust beginning September 30, 1996. This change has no effect on the income or loss recognized in the third quarter of 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): September 30, December 31, 1996 1995 ---------------------------------------- Equipment held for operating leases: Rail equipment $ 14,866 $ 14,907 Marine containers 15,913 17,355 Marine vessels 26,980 26,980 Aircraft 56,859 51,111 Trailers 6,959 6,944 Mobile offshore drilling unit -- 14,486 ---------------------------------------- 121,577 131,783 Less accumulated depreciation (70,768 ) (73,508 ) ---------------------------------------- Net equipment $ 50,809 $ 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 September 30, 1996, all equipment was either on lease or operating in PLM-affiliated short-term trailer rental facilities, except for two commercial aircraft, five railcars, and 54 marine containers. The net carrying value of equipment off-lease was $8.1 million at September 30, 1996. At December 31, 1995, 62 containers and one commercial aircraft were off-lease with a net carrying value of $4.8 million. PLM EQUIPMENT GROWTH FUND IV (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS September 30, 1996 3. Equipment (continued) During the nine months ended September 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 nine months ended September 30, 1996, the Partnership sold or disposed of a mobile offshore drilling unit (rig), 239 marine containers, one trailer, and two railcars with an aggregate net book value of $6.0 million for aggregate proceeds of $8.6 million. During the nine months ended September 30, 1995, the Partnership disposed of 278 marine containers, two aircraft, and 121 trailers with an aggregate net book value of $5.6 million for proceeds of $6.1 million. Periodically, PLM International. Inc., (the Company) will purchase groups of assets whose ownership may be allocated among affiliated partnerships and the Company. Generally in these cases, only assets that are on lease will be purchased by the affiliated partnerships. The Company will generally assume the ownership and remarketing risks associated with off-lease equipment. Allocation of the purchase price will be determined by a combination of third party industry sources, and recent transactions or published fair market value references. During the nine months ended September 30, 1996, the Company realized $0.7 million of gains on the sale of 69 off-lease railcars purchased by the Company as part of a group of assets in 1994 which had been allocated to PLM Equipment Growth Funds IV, VI, VII, Professional Lease Management Income Fund I, L.L.C. and the Company. 4. Cash Distribution Cash distributions are recorded when paid and totaled $5.5 million and $4.6 million for the nine months ended September 30, 1996 and 1995, respectively, and $1.8 million and $1.6 million for the three months ended September 30, 1996 and 1995, respectively. Cash distributions related to the third quarter results of $1.6 million will be paid on November 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 nine months ended September 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 PLM EQUIPMENT GROWTH FUND IV (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS September 30, 1996 5. Debt (continued) General Partner. As of September 30, 1996, AFG had $27.8 million in outstanding borrowings under the Committed Bridge Facility. Neither the Partnership, TECAI, 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. On October 31, 1996, the General Partner amended this agreement (for details refer to "Liquidity and Capital Resources"). 6. Subsequent Event The loan agreements require the Partnership to maintain certain minimum net worth ratios based on 33 1/3% of the fair market value of equipment plus cash and cash equivalents. Current economic conditions coupled with the increasing age of the Partnership's equipment, have resulted in decreased market values for the Partnership's equipment and has required an optional prepayment to be made in order to remain in compliance with the loan covenants. As a result, in November of 1996, the Partnership will pay $1.6 million in principal and $0.2 million in prepayment fees. 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 September 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 third 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 September 30, 1996 1995 ---------------------------- Aircraft $ 1,211 $ 1,000 Marine vessels 606 605 Trailers 380 376 Rail equipment 620 695 Marine containers 333 387 Mobile offshore drilling unit -- 87 Aircraft: Aircraft lease revenues and direct expenses were $1.3 million and $0.1 million, respectively, for the third quarter of 1996, compared to $1.3 million and $0.3 million, respectively, during the same quarter of 1995. The increase in lease revenue was due to the purchase of a Dash 8-300 aircraft at the end of the second quarter of 1996, which was on-lease for the entire third quarter in 1996. The increase was offset, in part, by the off-lease status of another aircraft in the beginning of the third quarter in 1996 when compared to the same quarter in 1995, which was on-lease for the entire quarter. Direct expenses decreased due to less repairs done on an off-lease aircraft, in the third quarter of 1996 when compared to the same period in 1995; Marine vessels: Marine vessel lease revenues and direct expenses were $1.6 million and $1.0 million respectively, for the third quarter of 1996, compared to $1.4 million and $0.8 million, respectively, during the same quarter of 1995. Lease revenue increased due to higher charter rates earned for a marine vessel that switched from a utilization-based pooling arrangement to a fixed rate time charter in the beginning of 1996. Direct expenses increased due to higher estimated future drydock costs for both marine vessels in the third quarter of 1996 when compared to the same period in 1995; Trailers: Trailer revenues and direct expenses were $0.5 million and $0.1 million, respectively, for the third quarter of 1996, compared to $0.5 million and $0.1 million, respectively, during the same quarter of 1995. Trailer net contributions remained relatively the same from the third quarter of 1996 compared to the same quarter in 1995; Rail equipment: Railcar lease revenues and direct expenses were $0.9 million and $0.3 million, respectively, for the third 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 $0.3 million and $0.4 million, for the third quarters of 1996 and 1995, respectively. The number of marine containers owned by the Partnership has been declining over the past twelve months due to sales and dispositions, thus resulting in a decrease in marine container net contributions; Mobile offshore drilling unit (rig): The rig was sold in the second quarter of 1996, resulting in the elimination of contribution in the third quarter. Revenues and expenses were $88,000 and $1,000, respectively, in the third quarter of 1995. (B) Indirect expenses related to owned equipment operations Total indirect expenses of $3.8 million for the quarter ended September 30, 1996, decreased from $4.2 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 $0.1 million decrease in interest expense resulted from a one-time charge in 1995 related to interest owed to former charterers of one of the Partnership's marine vessels. The claim relates to a cancellation of the charter in January 1991. Interest was paid in the third quarter of 1995 from January 1991 until the final settlement date. (C) Net gain (loss) on disposition of owned equipment Net loss on disposition of equipment for the third quarter of 1996 totaled $9,000 which resulted from the sale or disposal of 73 marine containers and one trailer with an aggregate net book value of $150,000 for aggregate proceeds of $141,000. For the third quarter of 1995, the $0.1 million net gain on disposition of equipment resulted from the sale or disposal of 112 marine containers and 121 trailers with an aggregate net book value of $1.7 million, for aggregate proceeds of $1.8 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 September 30, 1996 1995 ---------------------------- Aircraft $ (76 ) $ (117 ) Marine vessel 2 76 Aircraft: Aircraft revenues and expenses were $0.2 million and $0.3 million, respectively, for the third quarter of 1996, compared to $8,000 and $0.1 million, respectively, during the same quarter in 1995. The investment in a trust owning 737-200A commercial aircraft was acquired at the end of the third quarter of 1995. The net losses for the third quarter of 1996 and 1995 resulted from the Partnership's accelerated depreciation method; Marine vessel: As of September 30, 1996, the Partnership had a 50% interest in a marine vessel. Marine vessels revenues and expenses were $0.4 million and $0.4 million, respectively, for the third quarter of 1996, compared to $0.3 million and $0.2 million, respectively, during the same quarter in 1995. 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 resulting in an increase in expenses. (E) Net Loss As a result of the foregoing, the Partnership's net loss of $0.6 million for the third quarter of 1996, increased from net loss of $0.9 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 third 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 Nine Months Ended September 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 nine months ended September 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 nine months ended September 30, 1996 1995 ---------------------------- Aircraft $ 1,358 $ 4,205 Marine vessels 2,104 1,815 Trailers 1,210 615 Rail equipment 1,769 2,161 Marine containers 1,106 1,103 Mobile offshore drilling unit 163 164 Aircraft: Aircraft lease revenues and direct expenses were $3.9 million and $2.5 million, respectively, for the nine months ended September 30, 1996, compared to $4.6 million and $0.4 million, respectively, during the same period of 1995. The decrease in revenue was due to the sale of two aircraft in 1995. In addition, the decrease was attributable to another aircraft which came off lease in the beginning of the third quarter in 1996, which was on-lease for the first nine months in 1995. The decrease was offset, in part, by the purchase of a Dash 8-300 aircraft at the end of the second quarter of 1996. 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 required on another aircraft before it can be re-leased; Marine vessels: Marine vessel lease revenues and direct expenses were $5.0 million and $2.9 million, respectively, for the nine months ended September 30, 1996, compared to $4.6 million and $2.8 million, respectively, during the same period of 1995. Lease revenue increased due to higher charter rates earned for a marine vessel that switched from a utilization-based pooling arrangement to a fixed rate time charter in the beginning of 1996. In addition, revenues increased due to the higher profit sharing revenue earned on another marine vessel in the nine months ended September 30, 1996, compared to same period in 1995. Direct expenses increased due to higher estimated future drydock costs for both marine vessels in the nine months ended September 30, 1996 when compared to the same period in 1995. However, marine operating expenses were higher for the nine months ended September 30, 1995, due to repairs to a marine vessel's railings caused by heavy weather damage; Trailers: Trailer lease revenues and direct expenses were $1.5 million and $0.3 million, respectively, for the nine months ended September 30, 1996, compared to $0.8 million and $0.2 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 $2.7 million and $0.9 million, respectively, for the nine months ended September 30, 1996, compared to $2.7 million and $0.5 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 $1.1 million and $1.1 million for the nine months ended September 30, 1996 and 1995, respectively. Although net contribution have remained relatively the same from the nine months ended September 30, 1995, to the same period in 1996, lease revenues have decreased due to sales and dispositions of marine containers over the last twelve months, offset by an increase in a group of containers in the second quarter of 1996; Mobile offshore drilling unit (rig): The rig was sold in the second quarter of 1996, resulting in the elimination of contribution in the third quarter. Rig lease revenues and direct expenses were $0.2 million and $1,000, respectively, for the nine months ended September 30, 1996, compared to $0.2 million and $9,000, respectively, during the same period of 1995. (B) Indirect expenses related to owned equipment operations Total indirect expenses remained constant at $12.8 million from the nine months ended September 30, 1995, to the same period in 1996. Although indirect expenses remained relatively the same, the variances between the periods were significant. 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 $0.2 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 nine months of 1996 compared to the same period in 1995; (c) A $1.1 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 nine months ended September 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) A $0.1 million decrease in interest expense from a one-time interest charge in 1995. This interest was owed to former charterers of one of the Partnership's marine vessels. The claim relates to a cancellation of the charter in January 1991 until the final settlement date; (C) 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 fair value less cost to sell. This aircraft was sold in the second quarter of 1995. There was no loss on revaluation of equipment in the nine months ended September 30, 1996. (D) Net gain on disposition of owned equipment Net gain on disposition of equipment for the nine months ended September 30, 1996 totaled $2.6 million which resulted from the sale or disposal of 239 marine containers, two railcars, one trailer, and a mobile offshore drilling unit, with an aggregate net book value of $6.0 million for aggregate proceeds of $8.6 million. For the nine months ended September 30, 1995, the $0.5 million net gain on disposition of equipment resulted from the sale or disposal of 278 marine containers, two aircraft, and 121 trailers with an aggregate net book value of $5.6 million, for aggregate proceeds of $6.1 million. (E) Interest and other income Interest and other income decreased $0.1 million during the nine months ended September 30, 1996 due primarily to lower interest rates earned on cash balances available for investments when compared to the same period of 1995. (F) 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 nine months ended September 30, 1996 1995 ---------------------------- Aircraft $ (215 ) $ (117 ) Marine vessels (129 ) 214 Aircraft: Revenues and expenses were $0.8 million and $1.0 million, respectively, for the nine months ended September 30, 1996, compared to $8,000 and $0.1 million, respectively, for the same period in 1995. The investment in a trust owning 737-200A commercial aircraft was acquired at the end of the third quarter of 1995; Marine vessel: As of September 30, 1996, the Partnership had a 50% interest in a marine vessel. Revenues and expenses were $1.2 million and $1.3 million, respectively, for the nine months ended September 30, 1996, compared to $0.9 million and $0.7 million, respectively, for the same period in 1995. 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. (G) Net Loss As a result of the foregoing, the Partnership's net loss of $2.4 million for the nine months ended September 30, 1996, decreased from net loss of $2.3 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 nine months ended September 30, 1996, is not necessarily indicative of future periods. For the nine months ended September 30, 1996, the Partnership distributed $5.2 million to the Unitholders, or $0.60 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 maintain a net worth ratio of at least 33.33% of the fair market value of equipment plus cash. Current economic conditions coupled with the increasing age of the Partnership's equipment, have resulted in decreased market values for the Partnership's equipment and has required an optional prepayment to be made in order to remain in compliance with the loan covenants. As a result, in November of 1996, the Partnership will pay $1.6 million in principal and $0.2 million in prepayment fees. The General Partner has entered into a joint $50 million credit facility (the "Committed Bridge Facility") on behalf of the Partnership, 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 October 1996 to expire on October 31, 1997 and increase the available borrowings for AFG to $50 million. The Partnership, TECAI, Fund I and the other partnerships may borrow up to $35 million of the Committed Bridge Facility. 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 IV 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 October 31, 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 November 13, 1996, AFG had $39.7 million in outstanding borrowings under the Committed Bridge Facility. Neither the Partnership, TECAI, 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 September 30, 1996, the Partnership had repurchased 15,350 units for a total repurchase price of $0.2 million. These units repurchased during the nine months ended September 30, 1996 were a portion of the units identified for repurchase at December 31, 1995. From inception through September 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: November 14, 1996 By: /s/ David J. Davis ---------------------- David J. Davis Vice President and Corporate Controller