UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 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 ______
Aggregate Market Value of Voting Stock: N/A
An index of exhibits filed with this Form 10-K is located at page 24.
Total number of pages in this report: 44
PART I
ITEM 1. BUSINESS
(A) Background
In March 1989, PLM Financial Services, Inc. (FSI or the General Partner), a
wholly-owned subsidiary of PLM International, Inc. (PLM International), filed a
Registration Statement on Form S-1 with the Securities and Exchange Commission
with respect to a proposed offering of 8,750,000 Class A Depositary units
(including 1,250,000 option units) (the Units) in PLM Equipment Growth Fund IV,
a California limited partnership (the Partnership, the Registrant or EGF IV).
The Partnership's offering became effective on May 23, 1989. FSI, as General
Partner, owns a 5% interest in the Partnership. The Partnership engages in the
business of owning and leasing transportation equipment to be operated by and/or
leased to various shippers and transportation companies. The Partnership was
formed to engage in the business of owning and managing a diversified pool of
used and new transportation-related equipment and certain other items of
equipment. The Partnership's primary objectives are:
(i) to acquire a diversified portfolio of long-lived, low obsolescence,
high residual value equipment with the net proceeds of the initial partnership
offering, supplemented by debt financing if deemed appropriate by the General
Partner, until the conclusion of the reinvestment phase of the Partnership
operations on December 31, 1996;
(ii) to generate sufficient net operating cash flow from lease operations
to meet existing liquidity requirements and to generate cash distributions to
the Limited Partners until such time as the General Partner commences the
orderly liquidation of the Partnership assets or unless the Partnership is
terminated earlier upon sale of all Partnership property or by certain other
events;
(iii) to selectively sell equipment or purchase (until the conclusion of
the reinvestment phase, which ended on December 31, 1996) other equipment to add
to the Partnership's initial portfolio. The General Partner intends to sell
equipment when it believes that, due to market conditions, market prices for
equipment exceeds inherent equipment values or expected future benefits from
continued ownership of a particular asset will not equal or exceed other
equipment investment opportunities. Proceeds from these sales, together with
excess net operating cash flow from operations that remained after cash
distributions have been made to the Limited Partners, were used to acquire
additional equipment throughout the six year reinvestment phase of the
Partnership, which concluded on December 31, 1996;
(iv)to preserve and protect the value of the portfolio through quality
management and by maintaining the portfolio's diversity and constantly
monitoring equipment markets.
The offering of the Units of the Partnership closed on March 28, 1990. As
of December 31, 1996, there were 8,628,420 Units outstanding. The General
Partner contributed $100 for its 5% general partner interest in the Partnership.
In the ninth year of operations of the Partnership, the General Partner
will begin to liquidate the assets of the Partnership in an orderly fashion,
unless the Partnership is terminated earlier upon sale of all of the
Partnership's equipment or by certain other events. It is anticipated the
liquidation will be completed by the end of the tenth year of operations of the
Partnership. Beginning in the Partnership's seventh year of operations, all
surplus cash flow will be distributed to the Partners, used to repay Partnership
debt, or held as Partnership working capital. The sixth year of operations ended
December 31, 1996.
Table 1, below, the cost of equipment in the Partnership's portfolio, and
the cost of investments in unconsolidated special purpose entities, at December
31, 1996 (in thousands):
TABLE 1
Units Type Manufacturer Cost
- ---------------------------------------------------------------------------------------------------------------------
Equipment held for operating leases:
1 Bulk carrier Namura Shipping $ 9,719
1 DC-9-32 commercial aircraft McDonnell-Douglas 10,041
3 737-200 commercial aircraft - Stage II Boeing 26,945
1 Dash 8-300 Dehavilland 5,748
685 Dry marine containers Various 2,532
574 Refrigerated marine containers Various 12,966
99 Woodchip railcars General Electric 2,365
365 Pressurized & non-pressurized tank cars Various 10,349
110 Bulkhead flatcars Marine Industries, Ltd. 2,153
106 Refrigerated trailers Various 2,444
145 Dry Piggyback trailers Stoughton 1,113
275 Dry trailers Various 3,391
------------
Equipment held for operating leases 89,766<F1>
Equipment held for sale:
1 Product tanker K.K. Uwatima Zosen 17,261<F1>
------------
Total equipment $ 107,027
============
Investments in unconsolidated special purpose entities:
0.50 Bulk carrier Nipponkai & Toyama 9,705<F2>
0.17 Trust consisting of six 737-200A
Stage II commercial aircraft Boeing 4,494<F3>
0.35 Equipment on direct finance
lease: Two DC-9-47 commercial aircraft McDonnell-Douglas 4,206<F3>
------------
$ 18,405<F1>
============
<FN>
<F1> Includes proceeds from capital contributions, operations and Partnership
borrowings invested in equipment. Includes costs capitalized, subsequent to
the date of acquisition and equipment acquisition fees paid to PLM
Transportation Equipment Corporation, a wholly-owned subsidiary of FSI. All
equipment was used equipment and the time of purchase.
<F2> Jointly owned by Growth Fund IV and an affiliated partnership.
<F3> Jointly owned by Growth Fund IV and affiliated partnerships.
</FN>
The equipment is generally leased under operating leases for a term of one
to six years. Some of the Partnership's 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 pooled
equipment to sublessees, after deducting certain direct operating expenses of
the pooled equipment.
The lessees of the equipment include, but are not limited to, Cargill
International S.A., Continental Airlines, Inc., Transamerica Leasing, and
Canadian Pacific Railways. As of December 31, 1996, all of the equipment was on
lease except 48 marine containers, an aircraft, and three railcars.
(B) Management of Partnership Equipment
The Partnership has entered into an equipment management agreement with PLM
Investment Management, Inc. (IMI), a wholly-owned subsidiary of FSI, for the
management of the equipment. IMI has agreed to perform all services necessary to
manage the transportation equipment on behalf of the Partnership and to perform
or contract for the performance of all obligations of the lessor under the
Partnership's leases. In consideration for its services and pursuant to the
Partnership Agreement, IMI is entitled to a monthly management fee (See
Financial Statement, Notes 1 and 2).
(C) Competition
(1) Operating Leases vs. Full Payout Leases
Generally the equipment owned by the Partnership is leased out on an operating
lease basis wherein the rents owed during the initial non-cancelable term of the
lease are insufficient to recover the Partnership's purchase price of the
equipment. The short to mid-term nature of operating leases generally commands a
higher rental rate than the longer term, full payout leases and offers lessees
relative flexibility in their equipment commitment. In addition, the rental
obligation under the operating lease need not be capitalized on the lessee's
balance sheet.
The Partnership encounters considerable competition from lessors utilizing
full payout leases on new equipment, i.e., leases which have terms equal to the
expected economic life of the equipment. Full payout leases are written for
longer terms and for lower monthly rates than the Partnership offers. While some
lessees prefer the flexibility offered by a shorter term operating lease, other
lessees prefer the rate advantages possible with a full payout lease.
Competitors of the Partnership may write full payout leases at considerably
lower rates, or larger competitors with a lower cost of capital may offer
operating leases at lower rates, and as a result, the Partnership may be at a
competitive disadvantage.
(2) Manufacturers and Equipment Lessors
The Partnership also competes with equipment manufacturers who offer operating
leases and full payout leases. Manufacturers may provide ancillary services
which the Partnership cannot offer, such as specialized maintenance service
(including possible substitution of equipment), training, warranty services, and
trade-in privileges.
The Partnership competes with many equipment lessors, including ACF
Industries, Inc. (Shippers Car Line Division), General Electric Railcar Services
Corporation, Greenbrier Leasing Company, General Electric Capital Aviation
Services Corporation, and other limited partnerships which lease the same types
of equipment.
(D) Demand
The Partnership invests in transportation-related capital equipment. A general
distinction can be drawn between equipment used for the transport of either
materials and commodities or people. With the exception of aircraft leased to
passenger air carriers, the Partnership's equipment is used primarily for the
transport of materials.
The following describes the markets for the Partnership's equipment:
(1) Aircraft:
Commercial Aircraft
The market for commercial aircraft continued to improve in 1996, representing
two consecutive years of growth and profits in the airline industry. The $5.7
billion in net profits recorded by the world's top 100 airlines in 1995 grew to
over $6 billion in 1996. The profits are a result of the continued management
emphasis on costs. The demand for ever lower unit costs by airline managements
has caused a significant reduction of surplus used Stage II and Stage III
commercial aircraft. The result is a return to supply/demand equilibrium. On the
demand side, passenger traffic is improving, cargo movement is up, and load
factors are generally higher across the major markets.
These changes are reflected in the performance of the world's 62 major
airlines that operate 60% of the world airline fleet but handle 78% of world
passenger traffic. Focusing on the supply/demand for Partnership-type narrowbody
commercial aircraft, there were 213 used narrowbody aircraft available at year
end 1995. In the first ten months of 1996, this supply was reduced to 119
narrowbody aircraft available for sale or lease. Forecasts for 1997 see a
continuing supply/demand equilibrium due to air travel growth and balanced
aircraft supply.
The Partnership's narrowbody fleet includes late-model (post 1974) Boeing
737-200 Advanced aircraft. There are a total of 939 Boeing 737-200 aircraft in
service, with 219 built prior to 1974. Independent forecasts estimate that 250
of the total 737-200s will be retired, leaving approximately 700 aircraft in
service after 2003. The forecasts regarding hushkits estimate that half of the
700 Boeing 737-200s will be hushed to meet Stage III noise levels. The
Partnership's Stage II aircraft are prospects for Stage III hushkits due to
their age, hours, cycles, engine configurations, and operating weights.
The Partnership's DC-9-32 is a late-model aircraft. There are 663
DC-9-30/40/50 series aircraft in service. Independent forecasts estimate that
300 older DC-9 aircraft will be retired by the year 2003. The remaining fleet
will total approximately 350 aircraft, and most of these aircraft will be hushed
to Stage III. The aircraft will remain in active airline service. The lessees
are likely to be secondary airlines operating in markets outside the U.S.
The Partnership predominantly owns aircraft that are affected by U.S.
Federal Aviation Administration (FAA) regulatory requirements. However, the
majority of equipment is on long-term leases in foreign markets and has been
commanding lease rates higher than those available in the U.S.
(2) Marine Containers
At the end of 1995, the consensus of industry sources was that 1996 would see
both higher container utilization and strengthening of per diem lease rates.
Such was not the case, as there was no appreciable cyclical improvement in the
container market following the traditional winter slowdown. Industry utilization
continues to be under pressure, with per diem rates being impacted as well.
A substantial portion of the Partnership's containers are on long-term
utilization leases that were entered into with Trans Ocean Leasing as lessee.
The industry has seen a major consolidation as Transamerica Leasing, late in the
fourth quarter of 1996, acquired Trans Ocean Leasing. Transamerica Leasing is
the second largest container leasing company in the world. Transamerica Leasing
is the substitute lessee for Trans Ocean Leasing. Long term, such industry
consolidation should bring more rationalization to the market and result in
higher utilization and per diem rates.
(3) Railcars
Pressurized Tank Cars
These cars are used primarily in the petrochemical and fertilizer industries.
They transport liquefied petroleum gas (LPG) and anhydrous ammonia. The
utilization rate on the Partnership's fleet of pressurized tank cars was over
98% during 1996. Independent forecasts show the demand for natural gas growing
during 1997 to 1999, as the developing world, former Communist countries, and
the industrialized world all increase their demand for energy. The fertilizer
industry was undergoing a rapid restructuring toward the end of 1996 after a
string of major mergers, which began in 1995. These mergers reduce the number of
companies that use pressurized tank cars for fertilizer service. Whether or not
the economies of the mergers allow the total fleet size to be reduced remains to
be seen.
General Purpose Tank Cars
General purpose, or nonpressurized, tank cars are used to transport a wide
variety of bulk liquid commodities, such as petroleum fuels, lubricating oils,
vegetable oils, molten sulfur, corn syrup, asphalt, and specialty chemicals.
Demand for general purpose tank cars in the Partnership fleet has remained
healthy over the last two years, with utilization remaining above 98%.
Independent projections show the demand for petroleum growing during 1997 to
1999, as the developing world, former Communist countries, and the
industrialized world all increase their demand for energy. Chemical carloadings
for the first 40 weeks of 1996 were up one-tenth of one percent (0.1%) as
compared to the same period in 1995.
(4) Marine Vessels
The Partnership owns or has investments in small- to medium-sized dry bulk
vessels and a chemical tanker vessel, which are traded in worldwide markets,
carrying commodity cargoes.
The freight rates in the dry bulk shipping market are dependent on the
balance of supply and demand for shipping commodities and trading patterns for
such dry bulk commodities. In 1995, dry bulk shipping demand was robust (growing
at 5% over 1994) and there was a significant infusion of new vessel tonnage,
especially late in the year, causing some decline in freight rates after a peak
in midyear. The slide in freight rates continued in the first half of 1996, as
new tonnage was delivered and shipping demand slipped from the high growth rates
of 1995. In the third quarter of 1996, there was a significant acceleration in
the drop of freight rates, primarily caused by the lack of significant grain
shipment volumes and the infusion of new tonnage. The low freight rates induced
many ship owners to scrap older tonnage and to defer or cancel newbuilding
orders. In the fourth quarter, a strong grain harvest worldwide gave the market
new strength, and freight rates recovered to the levels experienced in early
1996, but not to 1995 levels. Overall, 1996 was a soft year for shipping, with
dry bulk demand growing only 1.8% and the dry bulk fleet growing 3% in tonnage.
The outlook for 1997 shows an expected improvement in demand, with growth at
2.4%, but a high orderbook remains. The year 1997 is expected to be a soft year
with relatively low freight rates; however, prospects may be strengthened by the
continued scrapping of older vessels in the face of soft rates and the deferment
or canceling of orders.
Demand for commodity shipping closely tracks worldwide economic growth;
however, economic development may alter demand patterns from time to time. The
Partnership operated its vessels in spot charters and period charters. This
operating approach provides the flexibility to adapt to changing demand
patterns.
Independent forecasts show that the longer-term outlook (past 1997) should
bring improvement in freight rates earned by vessels; however, this is dependent
on the supply/demand balance and stability in growth levels. The newbuilding
orderbook currently is slightly lower than at the end of 1995 in tonnage.
Shipyard capacity is booked through late 1998; however, it remains to be seen
how many of these orders will actually be fulfilled. Historically, demand has
averaged approximately 3% annual growth, fluctuating between flat growth and 6%
annually. With predictable long-term demand growth, the long-term outlook
depends on the supply side, which is affected by interest rates, government
shipbuilding subsidy programs, and prospects for reasonable capital returns in
shipping.
(5) Trailers
Intermodal Trailers
The robust intermodal trailer market that began four years ago began to soften
in 1995 and reduced demand continued in 1996. Intermodal trailer loadings were
flat in 1996 from 1995's depressed levels. This lack of growth has been the
result of many factors, ranging from truckload firms aggressively recapturing
market share from the railroads through aggressive pricing to the continuing
consolidation activities and asset efficiency improvements of the major U.S.
railroads.
All of these factors helped make 1996 a year of equalizing equipment supply
as railroads and lessors were pressured to retire older and less efficient
trailers. The two largest suppliers of railroad trailers reduced the available
fleet in 1996 by over 15%. Overall utilization for intermodal trailers,
including the Partnership's fleet, was lower in 1996 than in previous years.
Over-The-Road Dry Trailers
The over-the-road dry trailer market was weak in 1996, with utilization down
15%. The trailer industry experienced a record year in 1994 for new production,
and 1995 production levels were similar to 1994. However, in 1996, the truck
freight recession, along with an overbuilding situation, contributed to 1996's
poor performance. The year 1996 had too little freight and too much equipment
industrywide.
Over-The-Road Refrigerated Trailers
PLM experienced fairly strong demand levels in 1996 for its refrigerated
trailers. With over 15% of our fleet in refrigerated trailers, PLM and the
Partnerships are the largest supplier of short-term rental refrigerated trailers
in the U.S.
(E) Government Regulations
The use, maintenance, and ownership of equipment is regulated by federal, state,
local and/or foreign governmental authorities. Such regulations may impose
restrictions and financial burdens on the Partnership's ownership and operation
of equipment. Changes in government regulations, industry standards, or
deregulation may also affect the ownership, operation and resale of the
equipment. Substantial portions of the Partnership's equipment portfolio are
either registered or operated internationally. Such equipment may be subject to
adverse political, government, or legal actions, including the risk of
expropriation or loss arising from hostilities. Certain of the Partnership's
equipment is subject to extensive safety and operating regulations which may
require the removal from service or extensive modification of such equipment to
meet these regulations at considerable cost to the Partnership. Such regulations
include (but are not limited to):
(1) the U.S. Oil Pollution Act of 1990 (which established liability
for operators and owners of vessels, mobile offshore drilling
units, etc. that create environmental pollution);
(2) the U.S. Department of Transportation's Aircraft Capacity Act of
1990 (which limits or eliminates the operation of commercial
aircraft in the U.S. that do not meet certain noise, aging, and
corrosion criteria);
(3) the Montreal Protocol on Substances that Deplete the Ozone layer
and the U.S. Clean Air Act Amendments of 1990 (which call for the
control and eventual replacement of substances that have been
found to cause or contribute significantly to harmful effects on
the stratospheric ozone layer and which are used extensively as
refrigerants in refrigerated marine cargo containers,
over-the-road trailers, etc.).
(4) the U.S. Department of Transportation's Hazardous Materials
Regulations (which regulate the classification of and packaging
requirements for hazardous materials and which apply particularly
to the Partnership's tank cars).
ITEM 2. PROPERTIES
The Partnership neither owns nor leases any properties other than the equipment
it has purchased for leasing purposes. At December 31, 1996, the Partnership
owned a portfolio of transportation equipment as described in Part I, Table
1(a).
The Partnership maintains its principal office at One Market, Steuart
Street Tower, Suite 800, San Francisco, California 94105-1301. All office
facilities are provided by FSI without reimbursement by the Partnership.
ITEM 3. LEGAL PROCEEDINGS
PLM International, Inc. along with PLM Financial Services, Inc. (FSI), PLM
Investment Management, Inc. (IMI), PLM Transportation Equipment Corporation
(TEC), and PLM Securities Corp. (PLM Securities), and collectively with PLMI,
FSI, IMI, TEC and PLM Securities, (the "PLM Entities"), were named as defendants
in a class action lawsuit filed in the Circuit Court of Mobile County, Mobile,
Alabama, Case No. CV-97-251. The PLM Entities received service of the complaint
on February 10, 1997, and pursuant to an extension of time granted by plaintiffs
attorneys, have sixty days to respond to the complaint. PLM International, Inc.
is currently reviewing the substance of the allegations with its counsel, and
believes the allegations to be completely without merit and intends to defend
this matter vigorously.
The plaintiffs, who filed the compliant on their own and on behalf of
all class members similarly situated, are six individuals who allegedly invested
in certain California limited partnerships (the Growth Funds) sponsored by PLM
Securities, for which FSI acts as the general partner, including PLM Equipment
Growth Fund IV, PLM Equipment Growth Fund V, PLM Equipment Growth Fund VI, and
PLM Equipment Growth and Income Fund VII. The complaint purports 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 for breach of
third party beneficiary contracts against and /in violation of the National
Association of Securities Dealers rules of fair practice by PLM Securities
alone.
Plaintiffs allege that each defendant owed plaintiffs and the class
certain duties due to their status as fiduciaries, financial advisors, agents,
general partner, and control persons. Based on these duties, plaintiffs assert
liability against the PLM Entities 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
limited partnership units back to the defendants.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Partnership's limited partners during
the fourth quarter of its fiscal year ended December 31, 1996.
(This space intentionally left blank)
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED UNITHOLDER MATTERS
Pursuant to the terms of the Partnership Agreement, the General Partner is
entitled to a 5% interest in the profits and losses and distributions of the
Partnership. The General Partner is the sole holder of such interest. Gross
income in each year of the Partnership is specially allocated to the General
Partner to the extent necessary to cause the capital account balance of the
General Partner to be zero as of the close of such year. The remaining interests
in the profits and losses and distributions of the Partnership are owned, as of
December 31, 1996, by the 9,739 holders of Units in the Partnership.
There are several secondary exchanges which will facilitate sales and
purchases of limited partnership units. Secondary markets are characterized as
having few buyers for limited partnership interests and, therefore, generally
are viewed as inefficient vehicles for the sale of partnership units. There is
presently no public market for the Units, and none is likely to develop. To
prevent the Units from being considered "publicly traded" and, thereby, to avoid
taxation of the Partnership as an association treated as a corporation under the
Internal Revenue Code, the Units can not be transferred without the consent of
the General Partner, which may be withheld at its absolute discretion. The
General Partner intends to monitor transfers of Units in an effort to ensure
that they do not exceed the number permitted by certain safe harbors promulgated
by the Internal Revenue Service. The Partnership may be obligated to redeem a
certain number of Units each year. A transfer may be prohibited if the intended
transferee is not a U.S. Citizen or if the transfer would cause any portion of
the Units to be treated as "plan assets." In the twelve months ended December
31, 1996, the Partnership had repurchased 15,350 units for a total repurchase
price of $0.2 million. As of December 31, 1996, the Partnership had repurchased
a cumulative total of 121,580 units at a cost of $1.6 million.
(This space intentionally left blank)
ITEM 6. SELECTED FINANCIAL DATA
Table 2, below, lists selected financial data for the Partnership (in
thousands):
TABLE 3
For the years ended
December 31, 1996, 1995, 1994, 1993, and 1992
(in thousands except per unit amounts)
1996 1995 1994 1993 1992
-------------------------------------------------------------------------
Operating results:
Total revenues $ 22,120 $ 21,410 $ 24,367 $ 27,925 $ 33,670
Net gain on disposition
of equipment 3,179 530 3,336 179 47
Loss on revaluation of
equipment -- (417 ) (820 ) -- (3,428 )
Equity in net loss of
unconsolidated special purpose
entities (331 ) -- -- -- --
Net loss (4,119 ) (3,611 ) (5,112 ) (6,380 ) (7,153 )
At year-end:
Total assets $ 59,009 $ 71,924 $ 82,773 $ 98,453 $ 118,824
Total liabilities 34,100 35,449 35,997 38,880 37,210
Notes payable 29,250 30,800 30,800 33,000 34,000
Cash distributions $ 7,271 $ 6,443 $ 7,523 $ 14,628 $ 19,437
Cash distribution which represent a return
of capital $ 6,908 $ 6,124 $ 7,135 $ 13,891 $ 18,470
Per weighted average Limited Partnership
Unit:
Net loss $ (0.52 ) $ (0.45 ) $ (0.63 ) $ (0.82 ) $ (0.93 )
Cash distributions $ 0.80 $ 0.71 $ 0.82 $ 1.60 $ 2.11
Cash distribution which represent a return
of capital $ 0.80 $ 0.71 $ 0.82 $ 1.60 $ 2.11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
Management's Discussion and Analysis of Financial Condition and Results of
Operations relates to the Financial Statements of PLM Equipment Growth Fund IV
(the Partnership). The following discussion and analysis of operations focuses
on the performance of the Partnership's equipment in various sectors of the
transportation industry and its effect on the Partnership's overall financial
condition.
Results of Operations - Factors Affecting Performance
(A) Re-leasing and Repricing Activity
The exposure of the Partnership's equipment portfolio to repricing risk occurs
whenever the leases for the equipment expire or are otherwise terminated and the
equipment must be remarketed. Major factors influencing the current market rate
for transportation equipment include supply and demand for similar or comparable
types or kinds of transport capacity, desirability of the equipment in the lease
market, market conditions for the particular industry segment in which the
equipment is to be leased, overall economic conditions, various regulations
concerning the use of the equipment, and others. Equipment that is idle or out
of service between the expiration of one lease and the assumption of a
subsequent one can result in a reduction of contribution to the Partnership. The
Partnership experienced re-pricing exposure in 1996 primarily in its aircraft,
marine vessel, marine container, railcar and trailer portfolios.
(1) Aircraft: Aircraft contribution decreased from 1995 to 1996 due to the
off-lease status of a Boeing 737-200 aircraft that is being remarketed. All
other aircraft investments were on lease for the entire year.
(2) Marine Vessels: The Partnership's marine vessels operated in the time
and spot charter markets during 1996. Spot charters are usually of short
duration and reflect the short-term demand and pricing trends in the vessel
market. A marine vessel, owned by an entity in which the Partnership has a 50%
investment, experienced off-hire time in the beginning of 1996 due to
drydocking. While the average freight rates were lower in 1996 than 1995, the
Partnership experienced an increase in revenue primarily due to the switching
from a bare-boat charter to a time charter for a marine vessel and the switching
from a pooling arrangement to a time charter for another marine vessel.
(3) Marine Containers: The majority of the Partnership's marine container
portfolio operates in utilization-based leasing pools and as such was highly
exposed to re-leasing and repricing activity. The Partnership's marine container
contributions declined from 1995 to 1996, due to soft market conditions that
caused a decline in re-leasing activity.
(4) Railcars: The majority of the Partnership's railcar equipment remained
on-lease throughout the year, and thus was not adversely affected by re-leasing
and repricing exposure.
(5) Trailers: The majority of the Partnership's trailer portfolio operates
in short-term rental facilities or short-line railroad systems. The relatively
short duration of most leases in these operations exposes the trailers to
considerable re-leasing activity. Contributions from the Partnership's trailers
operated in short-term rental facilities and the short-line railroad system
declined from 1995 to 1996, due to soft market conditions that caused a decline
in re-leasing activity.
(B) Equipment Liquidations and Nonperforming Lessees
Liquidation of Partnership equipment represents a reduction in the size of the
equipment portfolio, and will result in reduction of net contributions to the
Partnership. Lessees not performing under the terms of their leases, either by
not paying rent, not maintaining or operating the equipment in accordance with
the conditions of the leases, or other possible departures from the leases can
result not only in reductions in net contribution, but also may require the
Partnership to assume additional costs to protect its interests under the
leases, such as repossession, legal fees, etc. The Partnership experienced the
following in 1996:
(1) Liquidations: During 1996, the Partnership sold a mobile offshore
drilling unit, 283 marine containers, one aircraft, two railcars, and two
trailers. The net result of all sales and liquidations has been a reduction in
the cost basis of the Partnership's equipment portfolio of approximately $30.5
million.
(2) Nonperforming Lessees: In the third quarter of 1996, the General
Partner repossessed an aircraft due to the lessee's inability to pay the
Partnership for outstanding receivables. During 1996, another aircraft lessee
and a marine container lessee also encountered financial difficulties. The
Partnership established reserves against these receivables due to the General
Partner's determination that ultimate collection of these revenues are
uncertain. Other equipment such as railcars, trailers and the remaining aircraft
and marine containers experienced minor non-performing issues that have no
significant impact on the Partnership.
(C) Reinvestment Risk
During the first six years of operations, the Partnership increased its
equipment portfolio by investing surplus cash in additional equipment after
fulfilling operating requirements and paying distributions to the partners.
Subsequent to the end of the reinvestment period which concluded on December 31,
1996, the Partnership will continue to operate for an additional two years, then
begin an orderly liquidation over an anticipated two-year period.
During the year, the Partnership received proceeds of approximately $13.1
million from the liquidation or sale of equipment. The Partnership reinvested
approximately $10.0 million of these sales proceeds, in an aircraft and a 35%
investment in a trust consisting of two McDonnell Douglas DC-9-47 aircraft.
These purchases occurred in the second and fourth quarters of 1996. In the third
quarter of 1996, the Partnership paid $1.6 million in principal and $0.2 million
in prepayment fees to remain in compliance with the net worth ratio contained in
the note agreement.
(D) Equipment Valuation and Write-downs
In March 1995, the Financial Accounting Standards Board (FASB) issued statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" (SFAS 121). This standard is effective for years
beginning after December 15, 1995. The Partnership adopted SFAS 121 during 1995,
the effect of which was not material as the method previously employed by the
Partnership was consistent with SFAS 121. In accordance with SFAS 121, the
Partnership reviews the carrying value of its equipment at least annually in
relation to expected future market conditions for the purpose of assessing the
recoverability of the recorded amounts. If projected future lease revenue plus
residual values are less than the carrying value of the equipment, a loss on
revaluation is recorded. The carrying value of a commuter aircraft was reduced
by $0.4 million in 1995 and sold in the second quarter. There were no write
downs required in 1996.
As of December 31, 1996, the General Partner estimated the current fair
market value of the Partnership's equipment portfolio, including equipment owned
by unconsolidated special purpose entities, to be approximately $86.5 million.
Financial Condition - Capital Resources and Liquidity
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, and make cash distributions to Limited Partners.
For the year ended December 31, 1996, the Partnership generated sufficient
funds to meet its operating obligations. In addition, the Partnership generated
sufficient cash flow to invest surplus funds into additional equipment and to
maintain the level of distributions.
The Partnership has one loan outstanding totaling $29.3 million. This loan
is due in three yearly principal payments of $8.2 million on July 1, 1997, 1998,
1999, and $6.2 million in 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,
resulted in decreased market values for the Partnership's equipment and required
an optional prepayment to be made in order to remain in compliance with the loan
covenants. As a result, during 1996, the Partnership repaid $1.6 million in
principal and $0.2 million in prepayment fees.
Pursuant to its prospectus, beginning January 1, 1993, the Partnership
could become obligated under certain conditions to redeem up to 2% of the
outstanding Depositary Units each year. The purchase price to be offered for
such outstanding units is to be equal to 110% of the unrecovered principal
attributed to the Units where unrecovered principal is defined as the excess of
the capital contribution attributable to a Unit over the distributions from any
source paid with respect to that Unit. The Partnership does not intend to
repurchase any Units in 1997. At December 31, 1995, the Partnership agreed to
repurchase approximately 21,994 Units for the aggregate price of approximately
$0.3 million. During 1996, only 15,350 units were repurchased for a price of
$0.2 million.
Results of Operations - Year to Year Detail Comparison
Comparison of Partnership's Operating Results for the Years Ended December 31,
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 year ended
December 31, 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 year ended
December 31,
1996 1995
----------------------------
Aircraft $ 2,487 $ 5,540
Marine vessels 2,232 2,496
Trailers 1,595 943
Rail equipment 2,251 2,837
Marine containers 1,191 1,218
Mobile offshore drilling unit 163 224
Aircraft: Aircraft lease revenues and direct expenses were $5.1 million and $2.6
million, respectively, for the year ended December 31, 1996, compared to $5.9
million and $0.4 million, respectively, during the same period of 1995. The
decrease in revenue was attributable to the sale of two aircraft in 1995, and
the off-lease status of another aircraft which was repossessed from the lessee
in the third quarter of 1996. The repossessed aircraft earned revenue for the
entire year of 1995 compared to 8 months of 1996. 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 sold at the end of 1996. This aircraft had been off-lease for
approximately two years. In addition, repairs on the repossessed aircraft were
required to meet airworthiness conditions before it could be re-leased;
Marine vessels: Marine vessel lease revenues and direct expenses were $6.6
million and $4.4 million, respectively, for the year ended December 31, 1996,
compared to $6.3 million and $3.8 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 year
ended December 31, 1996, compared to the same period in 1995. Direct expenses
increased due to higher estimated future drydock costs for both marine vessels
in the year ended December 31, 1996, when compared to the same period in 1995;
Trailers: Trailer lease revenues and direct expenses were $2.0 million and $0.4
million, respectively, for the year ended December 31, 1996, compared to $1.3
million and $0.4 million, respectively, during the same period of 1995. The
increase in lease revenues was primarily due to the addition of 333 trailers in
1995;
Rail equipment: Railcar lease revenues and direct expenses were $3.6 million and
$1.4 million, respectively, for the year ended December 31, 1996, compared to
$3.6 million and $0.8 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 and direct expenses were $1.2
million and $23,000, respectively, for the year ended December 31, 1996,
compared to $1.6 million and $0.4 million during the same period of 1995. Lease
revenues have decreased due to sales and dispositions of marine containers over
the last twelve months and lower utilization. Direct expenses have decreased
primarily due to repairs performed on 327 marine containers in 1995;
Mobile offshore drilling unit (rig): The Partnership's 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 $0.1 million and
$1,000, respectively, for the year ended December 31, 1996, compared to $0.2
million and $45,000, respectively, during the same period of 1995.
(B) Indirect expenses related to owned equipment operations
Total indirect expenses decreased to $17.0 million in 1996 from $17.3 million in
1995. The variances are explained as follows:
(1) A $1.0 million increase in bad debt expense reflects the General
Partner's evaluation of the collectibility of receivables due from two aircraft
lessees that encountered financial difficulties;
(2) A $0.3 million increase in general and administrative expenses from
1995 levels results from the increased administrative costs associated with the
short-term rental facilities due to additional trailers operating in the
facilities in the first months of 1996 compared to the same period in 1995;
(3) A $1.5 million decrease in depreciation and amortization expenses from
1995 levels reflects the sale of certain assets during 1996 and 1995;
(4) A $0.1 million decrease in management fees to affiliates, reflects the
lower levels of lease revenues in the year ended December 31, 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;
(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 year ended December 31, 1996.
(D) Net gain on disposition of owned equipment
Net gain on disposition of equipment for the year ended December 31, 1996
totaled $3.2 million which resulted from the sale or disposal of 283 marine
containers, an aircraft, two railcars, two trailers, and a mobile offshore
drilling unit, with an aggregate net book value of $9.9 million for aggregate
proceeds of $13.1 million. For the year ended December 31, 1995, the $0.5
million net gain on disposition of equipment resulted from the sale or disposal
of 357 marine containers, two aircraft, and 121 trailers with an aggregate net
book value of $5.7 million, for aggregate proceeds of $6.2 million.
(E) Interest and other income
Interest and other income decreased $0.1 million during the year ended December
31, 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 year months
ended December 31,
1996 1995
----------------------------
Aircraft $ (315 ) $ (263 )
Marine vessels (16 ) 203
Aircraft: Revenues and expenses were $1.1 million and $1.4 million,
respectively, for the year ended December 31, 1996, compared to $0.2 million and
$0.5 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. The net contribution is significantly impacted by the
depreciation charges which are greatest in the early years due to the use of the
200% declining balance method of depreciation. The Trust depreciates this
investment over 6 years;
Marine vessel: As of December 31, 1996, the Partnership had a 50% interest in an
entity which owns a marine vessel. Revenues and expenses were $1.7 million and
$1.7 million, respectively, for the year ended December 31, 1996, compared to
$1.2 million and $1.0 million, respectively, for the same period in 1995. At the
end of 1995, this marine vessel was transferred from a bare-boat charter to a
time charter. Time charters have 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 $4.1 million for the
year ended December 31, 1996, remained the same compared to 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
year ended December 31, 1996, is not necessarily indicative of future periods.
For the year ended December 31, 1996, the Partnership distributed $6.9 million
to the Unitholders, or $0.80 per weighted average Depositary Unit.
Comparison of Partnership's Operating Results for the Years Ended December 31,
1995 and 1994
(A) Revenues
Total revenues for the years ended December 31, 1995 and 1994, were $21.4
million and $24.4 million, respectively. The decrease in 1995 revenues was
attributable primarily to a smaller gain on disposition of equipment in 1995
compared to 1994. The Partnership's ability to acquire or 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 1995 is not necessarily indicative of future periods.
(1) Lease revenue declined by $0.1 million for the 12 months ended December
31, 1995. The following table lists lease revenues earned by equipment type (in
thousands):
For the year ended December
31,
1995 1994
-----------------------------
Marine vessels $ 7,466 $ 9,851
Aircraft 6,193 6,819
Rail equipment 3,639 1,985
Marine containers 1,611 1,063
Trailers 1,307 357
Mobile offshore drilling unit 259 533
=============================
$ 20,475 $ 20,608
=============================
This decrease resulted primarily from:
(a) A decrease in marine vessel revenue of $2.4 million due to the sale of
a vessel in August 1994 and another vessel in October of 1994, offset partially
by increases resulting from profit sharing earned on a vessel for the fourth
quarter of 1994 and the first and fourth quarters of 1995, and another vessel
which changed from a lower fixed rate bareboat to a higher-yielding utilization
pooled charter in July of 1994;
(b) A decrease in mobile offshore drilling rig revenue of $0.3 million due
to lower lease rates in the Gulf of Mexico and the off-lease status of the rig
during the second and third quarters of 1995;
(c) A decrease in aircraft revenue of $0.6 million due primarily to the
sale of two aircraft in the second quarter of 1995, partially offset by the
acquisition of an aircraft in August of 1994;
The above detailed decreases in revenue were partially offset by:
(d) An increase in rail revenue of $1.7 million due to the December 1994
acquisition of 235 pressurized and nonpressurized tank cars;
(e) An increase in trailer revenue of $1.0 million due to the addition of
50 trailers during 1994 and 333 trailers during 1995;
(f) An increase in container revenue of $0.5 million related to off-lease
containers with roof problems being repaired and going back on lease.
(2) Net gain on disposition of equipment totaled $0.5 million during 1995,
as a result of the disposal of 357 marine containers, the sale of 2 aircraft and
121 trailers with an aggregate net book value of $5.7 million for proceeds of
$6.2 million. Net gain on disposition of equipment totaled $3.3 million during
1994, due to the sale or disposal of 2 trailers, 2 railcars, 2 marine vessels,
and 380 marine containers. These assets had an aggregate net book value of $11.6
million; accrued drydock reserves at the time of sale were $0.3 million. These
assets were sold or disposed of for aggregate proceeds of $14.6 million.
(B) Expenses
The Partnership's total expenses for the years ended December 31, 1995 and 1994,
were $25.0 million and $29.5 million, respectively. The decrease was primarily
attributable to decreases in marine operating expenses, depreciation expense,
repositioning expense, loss on revaluation of equipment, and insurance expense,
offset in part by increases in bad debt expense.
(1) Direct operating expenses (defined as repairs and maintenance,
insurance expense, marine equipment operating expenses, and repositioning
expense) decreased to $5.9 million in 1995 from $8.6 million in 1994.
This change resulted from the following:
(a) A decrease of $2.0 million in marine equipment operating costs due
primarily to the sale of a vessel in August of 1994 and the sale of another
vessel in October of 1994. In addition, another marine vessel which was on a
short-term voyage charter was leased on a time charter. On short-term voyage
charters, the Partnership pays for some costs, such as bunkers and port costs,
which are the lessee's obligation under a time charter. This decrease was
partially offset by another vessel which moved from a bareboat charter, where
the lessee pays for all costs, to a pooled charter where costs are shared;
(b) A decrease of $0.7 million in repositioning expense due to the cost to
relocate a rig to the Gulf of Mexico in 1994;
(c) A decrease of $0.3 million in insurance expense to affiliates and other
insurance expense due to the sale of two vessels in 1994, offset partially by
hull and machinery and loss of hire insurance claims in process for 1991 through
1993;
(d) An increase of $0.4 million in repairs and maintenance resulted from
several factors: the roof delamination and normal wear and tear repairs
performed on 327 marine containers in 1995; the increased number of trailers
coming off term leases which required refurbishment prior to transitioning to
short-term rental facilities operated by an affiliate of the General Partner,
and normal repairs on 235 tankcars purchased in the fourth quarter of 1994.
These increases were offset by decreases in vessel expenses resulting from the
sale of two marine vessels in the third and fourth quarters of 1994.
(2) Indirect operating expenses (defined as depreciation and amortization
expense, management fees, interest expense, and general and administrative
expenses) decreased to $18.7 million in 1995 from $20.0 million in 1994. This
change resulted primarily from the following:
(a) A decrease of $1.6 million in depreciation and amortization expense
from 1994 levels reflecting the Partnership's double-declining depreciation
method and the disposal of equipment during 1994 and 1995; partially offset by
depreciation expense on $11.0 million of equipment acquired during 1995;
(b) A decrease of $0.3 million in interest expense due to a smaller
principal balance in 1995. During 1994, the Partnership paid down the
outstanding debt by $2.2 million, partially offset by interest owed to former
charterers of one of the Partnership's vessels. The claim relates to a
cancellation of the charter in January 1991. Interest was due from this date
until the final settlement date;
(c) A decrease of $0.1 million in management fees to affiliates due to
lower lease revenues 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;
(d) An increase of $0.7 million in bad debt expense due to the General
Partner's evaluation of the collectibility of trade receivables due from an
aircraft lessee that encountered financial difficulties.
(3) Loss on revaluation of equipment of $0.4 million results from the
reduction of the net book value of an aircraft to its estimated fair value less
costs to sell. This aircraft was sold in the second quarter of 1995. Loss on
revaluation of equipment in 1994 resulted from the Partnership's reducing the
net book value of one commercial aircraft, and one commuter aircraft by $0.8
million to their estimated net fair value less costs to sell.
(C) Net Loss
The Partnership's net loss of $3.6 million for the year ended December 31, 1995,
decreased from a net loss of $5.1 million for 1994. During 1995, the Partnership
distributed $6.1 million to the Limited Partners, or $0.71 per weighted average
Limited Partnership Unit.
Geographic Information
The Partnership operates its equipment in international markets. Although these
operations expose the Partnership to certain currency, political, credit and
economic risks, the General Partner believes these risks are minimal or has
implemented strategies to control the risks as follows: Currency risks are at a
minimum because all invoicing, with the exception of a small number of railcars
operating in Canada, is conducted in U.S. dollars. Political risks are minimized
generally through the avoidance of operations in countries that do not have a
stable judicial system and established commercial business laws. Credit support
strategies for lessees range from letters of credit supported by U.S. banks to
cash deposits. Although these credit support mechanisms generally allow the
Partnership to maintain its lease yield, there are risks associated with
slow-to-respond judicial systems when legal remedies are required to secure
payment or repossess equipment. Economic risks are inherent in all international
markets and the General Partner strives to minimize this risk with market
analysis prior to committing equipment to a particular geographic area. Refer to
the Financial Statements, Note 3 for information on the revenues, income, and
assets in various geographic regions.
Revenues and net operating income by geographic region are impacted by the
time period the asset is owned and the useful life ascribed to the asset for
depreciation purposes. Net income (loss) from equipment is significantly
impacted by depreciation charges which are greatest in the early years due to
the use of the 200% declining balance method of depreciation. The relationships
of geographic revenues, net income (loss) and net book value are expected to
significantly change in the future as additional equipment is sold or disposed
of in various equipment markets and geographic areas. An explanation of the
current relationships is presented below:
The Partnership's equipment on lease to U.S. domiciled lessees consists of
trailers, railcars, and aircraft. During 1996, lease revenues in the U.S.
accounted for 25% of the lease revenues while net operating income accounted for
$0.8 million in profit versus $4.1 million in loss for the entire Partnership.
The primary reason for this relationship is the fact that the Partnership
depreciates its rail equipment over a fifteen year period versus twelve years
for other equipment types owned and leased in other geographic regions.
The Partnership's equipment leased to Canadian domiciled lessees consists
of railcars, aircraft and a 16.67% investment in a trust consisting of 6
737-200A aircraft. During 1996, lease revenues accounted for 15% of total lease
revenues and $4,000 of the $4.1 million of the net operating loss for the entire
Partnership.
The Partnership's equipment on lease to South Asia domiciled lessees
accounted for 10% of the lease revenues while net operating loss for these
assets accounted for $2.9 million of the $4.1 million in loss for the entire
Partnership. The primary reason for this relationship is that during 1996, two
of the Partnership's aircraft in South Asia encountered financial difficulties
forcing the Partnership to repossess one of the aircraft. The Partnership
established reserves against these receivables due to the General Partner's
determination that ultimate collection of these rents are uncertain. In
addition, the repossessed aircraft underwent repairs to meet airworthiness
conditions. These repairs were more extensive than anticipated, costing
approximately $1.6 million.
In 1996, marine containers, marine vessels and a 50% investment in an
entity which owns a marine vessel, which were leased in various regions
throughout the period, accounted for 44% of the lease revenues while the net
operating income accounted for $0.6 million in profit versus a $4.1 million loss
for the entire Partnership.
European operations consisted of an aircraft that accounted for $1.7
million of the $4.1 million in loss for the entire Partnership. This aircraft
was off-lease for all of 1996 and incurred $1.0 million for the overhaul of four
engines and repairs to meet airworthiness conditions. This aircraft was
eventually sold in Australia at the end of 1996 for a gain of $0.6 million.
South American operations consisted of an aircraft where lease revenues
accounted for 5% of total lease revenues while net operating income accounted
for $0.3 million in profit compared to $4.1 million in loss for the entire
Partnership.
Gulf of Mexico operations consisted of a mobile offshore drilling unit
which was sold during 1996 for a gain of $2.5 million offset by a operating net
loss of $0.2 million.
Inflation
There was no significant impact on the Partnership's operations as a result of
inflation during 1996, 1995, or 1994.
Forward Looking Information
Except for historical information contained herein, the discussion in this Form
10-K contains forward-looking statements that involve risks and uncertainties,
such as statements of the Partnership's plans, objectives, expectations and
intentions. The cautionary statements made in this Form 10-K should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-K. The Partnership's actual results could differ materially from
those discussed here.
Outlook for the Future
In 1997, the Partnership will be in its holding or passive liquidation phase.
The General Partner will be seeking to selectively re-lease or sell assets as
the existing leases expire. Sale decisions will cause the operating performance
of the Partnership to decline over the remainder of its life. The General
Partner anticipates that the liquidation of Partnership assets will be completed
by the scheduled termination of the Partnership at the end of the year 2000.
The Partnership intends to use cash flow from operations to satisfy its
operating requirements, pay loan principal on debt, and pay cash distributions
to the investors.
(A) Impact of Government Regulations on Future Operations
The General Partner operates the Partnership's equipment in accordance with
current applicable regulations (see Item 1, Section E Government Regulations).
However, the continuing implementation of new or modified regulations by some of
the authorities mentioned previously, or others, may adversely affect the
Partnership's ability to continue to own or operate equipment in its portfolio.
Additionally, regulatory systems vary from country to country, which may
increase the burden to the Partnership of meeting regulatory compliance for the
same equipment operated between countries. Ongoing changes in the regulatory
environment, both in the U.S. and internationally, cannot be predicted with any
accuracy and preclude the General Partner from determining the impact of such
changes on Partnership operations, purchases, or sale of equipment.
(B) Distributions
Pursuant to the Limited Partnership Agreement, the Partnership ceased to
reinvest in additional equipment beginning in its seventh year of operations
which commenced on January 1, 1997. The General Partner intends to pursue a
strategy of selectively re-leasing equipment to achieve competitive returns, or
selling equipment that is underperforming or whose operation becomes
prohibitively expensive, in the period prior to the final liquidation of the
Partnership. During this time, the Partnership will use operating cash flow and
proceeds from the sale of equipment to meet its operating obligations and make
distributions to the partners. Although the General Partner intends to maintain
a sustainable level of distributions prior to final liquidation of the
Partnership, actual Partnership performance and other considerations may require
adjustments to then-existing distribution levels. In the long term, changing
market conditions and used-equipment values may preclude the General Partner
from accurately determining the impact of future re-leasing activity and
equipment sales on Partnership performance and liquidity. Consequently, the
General Partner cannot establish future distribution levels with any certainty
at this time.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements for the Partnership are listed on the Index to
Financial Statements included in Item 14(a) of this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
(This space intentionally left blank.)
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
As of the date of this Annual Report, the directors and executive officers of
PLM International (and key executive officers of its subsidiaries) are as
follows:
Name Age Position
- -------------------------------------- ------------------- -------------------------------------------------------
J. Alec Merriam 61 Director, Chairman of the Board, PLM International,
Inc.; Director, PLM Financial Services, Inc.
Douglas P. Goodrich 50 Director and Senior Vice President, PLM
International; Director and President, PLM Financial
Services, Inc.; Senior Vice President, PLM
Transportation Equipment Corporation; President, PLM
Railcar Management Services, Inc.
Walter E. Hoadley 80 Director, PLM International, Inc.
Robert L. Pagel 60 Director, Chairman of the Executive Committee, PLM
International, Inc.; Director, PLM Financial
Services, Inc.
Harold R. Somerset 62 Director, PLM International, Inc.
Robert N. Tidball 58 Director, President and Chief Executive Officer, PLM
International, Inc.
J. Michael Allgood 48 Vice President and Chief Financial Officer, PLM
International, Inc. and PLM Financial Services, Inc.
Stephen M. Bess 50 President, PLM Investment Management, Inc.;
President, PLM Securities, Inc.; Vice President, PLM
Financial Services, Inc.
David J. Davis 40 Vice President and Corporate Controller, PLM
International and PLM Financial Services, Inc.
Frank Diodati 42 President, PLM Railcar Management Services Canada
Limited.
Steven O. Layne 42 Vice President, PLM Transportation Equipment
Corporation.; Vice President and Director, PLM
Worldwide Management Services, Ltd.
Stephen Peary 48 Senior Vice President, General Counsel and Secretary,
PLM International, Inc.; Vice President, General
Counsel and Secretary, PLM Financial Services, Inc.,
PLM Investment Management, Inc., PLM Transportation
Equipment Corporation; Vice President, PLM
Securities, Corp.
Thomas L. Wilmore 54 Vice President, PLM Transportation Equipment
Corporation; Vice President, PLM Railcar Management
Services, Inc.
J. Alec Merriam was appointed Chairman of the Board of Directors of PLM
International in September 1990, having served as a director since February
1988. In October 1988 he became a member of the Executive Committee of the Board
of Directors of PLM International. From 1972 to 1988, Mr. Merriam was Executive
Vice President and Chief Financial Officer of Crowley Maritime Corporation, a
San Francisco area-based company engaged in maritime shipping and transportation
services. Previously, he was Chairman of the Board and Treasurer of LOA
Corporation of Omaha, Nebraska and served in various financial positions with
Northern Natural Gas Company, also of Omaha.
Douglas P. Goodrich was elected to the Board of Directors in July 1996, and
appointed Director and President of PLM Financial Services in June 1996, and
appointed Senior Vice President of PLM International in March 1994. Mr. Goodrich
has also served as Senior Vice President of PLM Transportation Equipment
Corporation since July 1989, and as President of PLM Railcar Management
Services, Inc. since September 1992, having been a Senior Vice President since
June 1987. Mr. Goodrich was an Executive Vice President of G.I.C. Financial
Services Corporation, a subsidiary of Guardian Industries Corp. of Chicago,
Illinois from December 1980 to September 1985.
Dr. Hoadley joined PLM International's Board of Directors and its Executive
Committee in September 1989. He served as a Director of PLM, Inc. from November
1982 to June 1984 and PLM Companies, Inc. from October 1985 to February 1988.
Dr. Hoadley has been a Senior Research Fellow at the Hoover Institute since
1981. He was Executive Vice President and Chief Economist for the Bank of
America from 1968 to 1981 and Chairman of the Federal Reserve Bank of
Philadelphia from 1962 to 1966. Dr. Hoadley had served as a Director of
Transcisco Industries, Inc. from February 1988 through August 1995.
Robert L. Pagel was appointed Chairman of the Executive Committee of the
Board of Directors of PLM International in September 1990, having served as a
director since February 1988. In October 1988, he became a member of the
Executive Committee of the Board of Directors of PLM International. From June
1990 to April 1991, Mr. Pagel was President and Co-Chief Executive Officer of
The Diana Corporation, a holding company traded on the New York Stock Exchange.
He is the former President and Chief Executive Officer of FanFair Corporation
which specializes in sports fans' gift shops. He previously served as President
and Chief Executive Officer of Super Sky International, Inc., a publicly traded
company, located in Mequon, Wisconsin, engaged in the manufacture of skylight
systems. He was formerly Chairman and Chief Executive Officer of Blunt, Ellis &
Loewi, Inc., a Milwaukee-based investment firm. Mr. Pagel retired from Blunt,
Ellis & Loewi in 1985 after a career spanning 20 years in all phases of the
brokerage and financial industries. Mr. Pagel has also served on the Board of
Governors of the Midwest Stock Exchange.
Harold R. Somerset was elected to the Board of Directors of PLM
International in July 1994. From February 1988 to December 1993, Mr. Somerset
was President and Chief Executive Officer of California & Hawaiian Sugar
Corporation (C&H), a recently-acquired subsidiary of Alexander & Baldwin, Inc.
Mr. Somerset joined C&H in 1984 as Executive Vice President and Chief Operating
Officer, having served on its Board of Directors since 1978, a position in which
he continues to serve. Between 1972 and 1984, Mr. Somerset served in various
capacities with Alexander & Baldwin, Inc., a publicly-held land and agriculture
company headquartered in Honolulu, Hawaii, including Executive Vice President -
Agricultures, Vice President, General Counsel and Secretary. In addition to a
law degree from Harvard Law School, Mr. Somerset also holds degrees in civil
engineering from the Rensselaer Polytechnic Institute and in marine engineering
from the U.S. Naval Academy. Mr. Somerset also serves on the Boards of Directors
for various other companies and organizations, including Longs Drug Stores,
Inc., a publicly-held company headquartered in Maryland.
Robert N. Tidball was appointed President and Chief Executive Officer of
PLM International in March 1989. At the time of his appointment, he was
Executive Vice President of PLM International. Mr. Tidball became a director of
PLM International in April 1989 and a member of the Executive Committee of the
Board of Directors of PLM International in September 1990. Mr. Tidball was
elected President of PLM Railcar Management Services, Inc. in January 1986. Mr.
Tidball was Executive Vice President of Hunter Keith, Inc., a Minneapolis-based
investment banking firm, from March 1984 to January 1986. Prior to Hunter Keith,
Inc., he was Vice President, a General Manager and a Director of North American
Car Corporation, and a Director of the American Railcar Institute and the
Railway Supply Association.
J. Michael Allgood was appointed Vice President and Chief Financial Officer
of PLM International in October 1992. Between July 1991 and October 1992, Mr.
Allgood was a consultant to various private and public sector companies and
institutions specializing in financial operational systems development. In
October 1987, Mr. Allgood co-founded Electra Aviation Limited and its holding
company, Aviation Holdings Plc of London where he served as Chief Financial
Officer until July 1991. Between June 1981 and October 1987, Mr. Allgood served
as a First Vice President with American Express Bank, Ltd. In February 1978, Mr.
Allgood founded and until June 1981, served as a director of Trade Projects
International/Philadelphia Overseas Finance Company, a joint venture with
Philadelphia National Bank. From March 1975 to February 1978, Mr. Allgood served
in various capacities with Citibank, N.A.
Stephen M. Bess was appointed President of PLM Securities, Inc. in June
1996 and President of PLM Investment Management, Inc. in August 1989, having
served as Senior Vice President of PLM Investment Management, Inc. beginning in
February 1984 and as Corporate Controller of PLM Financial Services, Inc.
beginning in October 1983. Mr. Bess served as Corporate Controller of PLM, Inc.,
beginning in December 1982. Mr. Bess was Vice President-Controller of Trans
Ocean Leasing Corporation, a container leasing company, from November 1978 to
November 1982, and Group Finance Manager with the Field Operations Group of
Memorex Corp., a manufacturer of computer peripheral equipment, from October
1975 to November 1978.
David J. Davis was appointed Vice President and Controller of PLM
International in January 1994. From March 1993 through January 1994, Mr. Davis
was engaged as a consultant for various firms, including PLM. Prior to that Mr.
Davis was Chief Financial Officer of LB Credit Corporation in San Francisco from
July 1991 to March 1993. From April 1989 to May 1991, Mr. Davis was Vice
President and Controller for ITEL Containers International Corporation which was
located in San Francisco. Between May 1978 and April 1989, Mr. Davis held
various positions with Transamerica Leasing Inc., in New York, including that of
Assistant Controller for their rail leasing division.
Frank Diodati was appointed President of PLM Railcar Management Services
Canada Limited in 1986. Previously, Mr. Diodati was Manager of Marketing and
Sales for G.E. Railcar Services Canada Limited.
Steven O. Layne was appointed Vice President, PLM Transportation Equipment
Corporation's Air Group in November 1992, and was appointed Vice President and
Director of PLM Worldwide Management Services, Ltd. in September 1995. Mr. Layne
was PLM Transportation Equipment Corporation's Vice President, Commuter and
Corporate Aircraft beginning in July 1990. Prior to joining PLM, Mr. Layne was
the Director, Commercial Marketing for Bromon Aircraft Corporation, a joint
venture of General Electric Corporation and the Government Development Bank of
Puerto Rico. Mr. Layne is a Major in the United States Air Force Reserves and
senior pilot with 13 years of accumulated service.
Stephen Peary became Vice President, Secretary, and General Counsel of PLM
International in February 1988 and Senior Vice President in March 1994. Mr.
Peary was Assistant General Counsel of PLM Financial Services, Inc. from August
1987 through January 1988. Previously, Mr. Peary was engaged in the private
practice of law in San Francisco. Mr. Peary is a graduate of the University of
Illinois, Georgetown University Law Center, and Boston University (Masters of
Taxation Program).
Thomas L. Wilmore was appointed Vice President - Rail, PLM Transportation
Equipment Corporation in March 1994 and has served as Vice President, Marketing
for PLM Railcar Management Services, Inc. since May 1988. Prior to joining PLM,
Mr. Wilmore was Assistant Vice President Regional Manager for MNC Leasing Corp.
in Towson, Maryland from February 1987 to April 1988. From July 1985 to February
1987, he was President and Co-Owner of Guardian Industries Corp., Chicago,
Illinois and between December 1980 and July 1985, Mr. Wilmore was an Executive
Vice President for its subsidiary, G.I.C. Financial Services Corporation. Mr.
Wilmore also served as Vice President of Sales for Gould Financial Services
located in Rolling Meadows, Illinois from June 1978 to December 1980.
The directors of the General Partner are elected for a one-year term or
until their successors are elected and qualified. There are no family
relationships between any director or any executive officer of the General
Partner.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no directors, officers, or employees. The Partnership
has no pension, profit-sharing, retirement, or similar benefit plan in effect as
of December 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
The General Partner is generally entitled to a 5% interest in the
profits and losses and distributions of the Partnership. At December
31, 1996, no investor was known by the General Partner to beneficially
own more than 5% of the Units of the Partnership.
(b) Security Ownership of Management
Neither the General Partner and its affiliates nor any officer or
director of the General Partner and its affiliates own any Units of the
Partnership as of December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with Management and Others
During 1996, management fees to IMI were $0.9 million. The Partnership
reimbursed FSI and its affiliates $0.6 million for administrative and
data processing services performed on behalf of the Partnership in
1996. The Partnership paid or accrued acquisition and lease negotiation
fees of $0.3 million in 1996. The Partnership paid Transportation
Equipment Indemnity Company Ltd., (TEI) a wholly-owned, Bermuda-based
subsidiary of PLM International $0.2 million for insurance coverages
during 1996, which amounts were paid substantially to third party
reinsurance underwriters or placed in risk pools managed by TEI on
behalf of affiliated partnerships and PLM International which provide
threshold coverages on marine vessel loss of hire and hull and
machinery damage. All pooling arrangement funds are either paid out to
cover applicable losses or refunded pro rata by TEI.
During 1996, the Unconsolidated Special Purpose Entities paid or
accrued the following fees to FSI or its affiliates (based on the
Partnership's proportional share of ownership): management fees -
$155,000; administrative and data processing services - $38,000;
equipment acquisition fees - $181,000 and lease negotiation fees -
$40,000. The Unconsolidated Special Purpose Entities also paid TEI
$72,000 for insurance coverages during 1996.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management
None.
(d) Transactions With Promoters
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements listed in the accompanying Index to
Financial Statements are filed as part of this Annual Report.
(b) Reports on Form 8-K
None.
(c) Exhibits
4. Limited Partnership Agreement of Registrant, incorporated by
reference to the Partnership's Registration Statement on Form S-1
(Reg. No. 33-27746) which became effective with the Securities and
Exchange Commission on May 23, 1989.
10.1 Management Agreement between Partnership and PLM Investment
Management, Inc., incorporated by reference to the Partnership's
Registration Statement on Form S-1 (Reg. No. 33-27746) which
became effective with the Securities and Exchange Commission on
May 23, 1989.
10.2 Note Agreement, dated as of July 1, 1990, regarding $33,000,000
9.75% Senior Notes due July 1, 2000. Incorporated by reference to
the Partnership's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 30, 1991.
10.3 Note Agreement, dated as of August 21, 1992, regarding $6,000,000
variable rate line of credit due August 19, 1994.
10.4 Second Amended and Restated Warehousing Credit Agreement, dated as
of May 31, 1996 with First Union Bank of North Carolina.
10.5 Amendment No. 1 to Second Amended and restated Warehousing Credit
Agreement, dated as of November 5, 1996 with First Union National
Bank of North Carolina.
24. Powers of Attorney.
(This space intentionally left blank.)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
The Partnership has no directors or officers. The General Partner has
signed on behalf of the Partnership by duly authorized officers.
Date: March 5, 1997 PLM EQUIPMENT GROWTH FUND IV
PARTNERSHIP
By: PLM Financial Services, Inc.
General Partner
By: /s/ Douglas P. Goodrich
--------------------------
Douglas P. Goodrich
President and Director
By: /s/ David J. Davis
--------------------------
David J. Davis
Vice President and
Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following directors of the Partnership's General
Partner on the dates indicated.
Name Capacity Date
*____________________
J. Alec Merriam Director - FSI March 5, 1997
*____________________
Robert L. Pagel Director - FSI March 5, 1997
* Stephen Peary, by signing his name hereto does sign this document on behalf of
the persons indicated above pursuant to powers of attorney duly executed by such
persons and filed with the Securities and Exchange Commission.
/s/ Stephen Peary
- --------------------
Stephen Peary
Attorney-in-Fact
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
INDEX TO FINANCIAL STATEMENTS
(Item 14(a))
Page
Report of Independent Auditors 27
Balance sheets as of December 31, 1996 and 1995 28
Statements of operations for the years ended December 31, 1996,
1995 and 1994 29
Statements of changes in partners' capital for the years
ended December 31, 1996, 1995 and 1994 30
Statements of cash flows for the years ended December 31, 1996,
1995 and 199431
Notes to financial statements 32-41
All other financial statement schedules have been omitted as the required
information is not pertinent to the Registrant or is not material, or because
the information required is included in the financial statements and notes
thereto.
REPORT OF INDEPENDENT AUDITORS
The Partners
PLM Equipment Growth Fund IV
We have audited the accompanying balance sheets of PLM Equipment Growth Fund IV
as of December 31, 1996 and 1995, and the related statements of operations,
changes in partners' capital, and cash flows for each of the years in the
three-year period ended December 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PLM Equipment Growth Fund IV as
of December 31, 1996 and 1995 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996 in
conformity with generally accepted accounting principles.
/S/ KPMG PEAT MARWICK LLP
- --------------------------
SAN FRANCISCO, CALIFORNIA
February 28, 1997
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
BALANCE SHEETS
December 31,
(in thousands of dollars except per unit amounts)
ASSETS
1996 1995
---------------------------------
Equipment held for operating leases, at cost $ 89,766 $ 131,783
Less accumulated depreciation (50,784 ) (73,508 )
---------------------------------
38,982 58,275
Equipment held for sale 5,524 --
---------------------------------
Net equipment 44,506 58,275
Cash and cash equivalents 2,142 1,236
Restricted cash 552 575
Due from affiliates 357 332
Accounts receivable, net of allowance for doubtful
accounts of $2,329 in 1996 and $775 in 1995 1,447 3,356
Investments in unconsolidated special purpose entities 9,616 7,380
Notes receivable 30 325
Lease negotiation fees to affiliate, net of accumulated
amortization of $139 in 1996 and $1,882 in 1995 86 163
Debt placement fees to affiliate, net of accumulated
amortization of $275 in 1996 and $237 in 1995 133 171
Prepaid expenses and other assets 140 111
---------------------------------
Total assets $ 59,009 $ 71,924
=================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Due to affiliates $ 304 $ 998
Accounts payable and accrued expenses 1,027 403
Lessee deposits and reserve for repairs 2,967 2,673
Security deposits 552 575
Notes payable 29,250 30,800
---------------------------------
Total liabilities 34,100 35,449
Partners' capital:
Limited Partners (8,628,420 Limited Partnership Units
in 1996 and 8,643,770 in 1995) 24,909 36,475
General Partner -- --
---------------------------------
Total partners' capital 24,909 36,475
---------------------------------
Total liabilities and partners' capital $ 59,009 $ 71,924
=================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31,
(in thousands of dollars except per unit amounts)
1996 1995 1994
-------------------------------------------
Revenues:
Lease revenue $ 18,671 $ 20,475 $ 20,608
Interest and other income 270 405 423
Net gain on disposition of equipment 3,179 530 3,336
-------------------------------------------
Total revenues 22,120 21,410 24,367
Expenses:
Depreciation and amortization 9,791 12,561 14,175
Management fees to affiliate 895 1,064 1,183
Repairs and maintenance 5,639 2,822 2,456
Interest expense 3,109 3,126 3,379
Insurance expense to affiliate 180 256 521
Other insurance expense 622 552 636
Repositioning expense -- -- 689
Marine equipment operating expenses 2,445 2,282 4,316
General and administrative expenses
to affiliates 606 563 425
Other general and administrative expenses 993 717 879
Bad debt expense 1,628 661 --
Loss on revaluation of equipment -- 417 820
-------------------------------------------
Total expenses 25,908 25,021 29,479
Equity in net loss of unconsolidated special purpose entities (331 ) -- --
-------------------------------------------
Net loss $ (4,119 ) $ (3,611 ) $ (5,112 )
===========================================
Partners' share of net income (loss):
Limited Partners $ (4,482 ) $ (3,930 ) $ (5,500 )
General Partner 363 319 388
===========================================
Total $ (4,119 ) $ (3,611 ) $ (5,112 )
===========================================
Net loss per weighted average Limited Partnership Unit
(8,633,331, 8,647,516, and 8,665,650 Units)
at December 31,1996, 1995, and 1994 $ (0.52 ) $ (0.45 ) $ (0.63 )
===========================================
Cash distributions $ 7,271 $ 6,443 $ 7,523
===========================================
Cash distribution per weighted average Limited Partnership Unit $ 0.80 $ 0.71 $ 0.82
===========================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the years ended December 31, 1995, 1994, and 1993
(in thousands)
Limited General
Partners Partner Total
-----------------------------------------------
Partners' capital at December 31, 1993 $ 59,574 $ -- $ 59,574
Net income (loss) (5,500 ) 388 (5,112 )
Cash distributions (7,135 ) (388 ) (7,523 )
Repurchase of Units (163 ) -- (163 )
-----------------------------------------------
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 Units (247 ) -- (247 )
-----------------------------------------------
Partners' capital at December 31, 1995 36,475 -- 36,475
Net income (loss) (4,482 ) 363 (4,119 )
Cash distributions (6,908 ) (363 ) (7,271 )
Repurchase of Units (176 ) -- (176 )
-----------------------------------------------
Partners' capital at December 31, 1996 $ 24,909 $ -- $ 24,909
===============================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31,
(thousands of dollars)
1996 1995 1994
--------------------------------------------
Operating activities:
Net loss $ (4,119 ) $ (3,611 ) $ (5,112 )
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 9,791 12,561 14,175
Net gain on disposition of equipment (3,179 ) (530 ) (3,336 )
Loss on revaluation of equipment -- 417 820
Equity in net loss of unconsolidated special purpose
entities 331 -- --
Changes in operating assets and liabilities:
Restricted cash 23 -- --
Due from affiliates (25 ) (332 ) --
Accounts and notes receivable, net 2,204 (1,009 ) 402
Prepaid expenses and other assets (29 ) (21 ) 43
Due to affiliates (694 ) (103 ) 448
Accounts payable and accrued expenses 624 203 (1,416 )
Lessee deposits and reserve for repairs 279 (114 ) 286
--------------------------------------------
Net cash provided by operating activities 5,206 7,461 6,310
--------------------------------------------
Investing activities:
Purchase of equipment (5,542 ) (10,670 ) (12,935 )
Equipment purchased for Unconsolidated Special
Purpose Entity (4,247 ) -- --
Payments of acquisition fees to affiliate (247 ) (47 ) (649 )
Payments of lease negotiation fees to affiliate (12 ) (11 ) (129 )
Proceeds from disposition of equipment 13,065 6,239 14,591
Distributions from unconsolidated special purpose entities 1,680 -- --
--------------------------------------------
Cash (used in) provided by investing activities 4,697 (4,489 ) 878
--------------------------------------------
Financing activities:
Repayment of notes payable (1,550 ) -- (2,200 )
Cash distributions paid to Limited Partners (6,908 ) (6,124 ) (7,135 )
Cash distributions paid to General Partner (363 ) (319 ) (388 )
Repurchase of Limited Partnership Units (176 ) (247 ) (163 )
--------------------------------------------
Cash used in financing activities (8,997 ) (6,690 ) (9,886 )
--------------------------------------------
Net (decrease) increase in cash and cash
equivalents 906 (3,718 ) (2,698 )
Cash and cash equivalents at beginning of year (See Note 4) 1,236 5,629 8,327
--------------------------------------------
Cash and cash equivalents at end of year $ 2,142 $ 1,911 $ 5,629
============================================
Supplemental information:
Interest paid $ 3,159 $ 3,003 $ 3,379
============================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
1. Basis of Presentation
Organization
PLM Equipment Growth Fund IV, a California limited partnership (the
Partnership), was formed on March 25, 1989. The Partnership engages
primarily in the business of owning and leasing used transportation
equipment. The Partnership offering became effective May 23, 1989. The
Partnership commenced significant operations in September 1989. PLM
Financial Services, Inc. (FSI) is the General Partner. FSI is a
wholly-owned subsidiary of PLM International, Inc. (PLM International).
The Partnership will terminate on December 31, 2009, unless
terminated earlier upon sale of all equipment or by certain other
events. At the conclusion of the Partnership's sixth year of operations
on December 31, 1996, the General Partner stopped reinvesting excess
cash and will start distributing any funds remaining to the Partners.
Beginning in the Partnership's ninth year of operations, the General
Partner intends to begin an orderly liquidation of the Partnership's
assets. The General Partner anticipates that the liquidation of the
assets will be completed by the end of the Partnership's tenth year of
operations.
FSI manages the affairs of the Partnership. The net income (loss)
and distributions of the Partnership are generally allocated 95% to the
Limited Partners and 5% to the General Partner (see Net Income (Loss)
and Distribution per Unit, below). The General Partner is entitled to a
subordinated incentive fee equal to 7.5% of "Surplus Distributions" as
defined in the Limited Partnership Agreement remaining after the
Limited Partners have received a certain minimum rate of return.
The General Partner has determined that it will not adopt a
reinvestment plan for the Partnership. The Partnership may be obligated
to redeem up to 2% of the outstanding Units each year subject to the
General Partner's right to terminate the Plan at any time. The purchase
price to be offered by the Partnership for the outstanding Units will
be equal to 110% of the unrecovered principal attributable to the
Units. The 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 Units.
In the twelve months ended December 31, 1996, the Partnership has
repurchased 15,350 units at a total repurchase price of $0.2 million.
As of December 31, 1996, the Partnership had repurchased a cumulative
total of 121,580 units at a cost of $1.6 million.
These financial statements have been prepared on the accrual basis
of accounting in accordance with generally accepted accounting
principles. This requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Operations
The equipment of the Partnership is managed, under a continuing
management agreement by PLM Investment Management, Inc. (IMI), a
wholly-owned subsidiary of FSI. IMI receives a monthly management fee
from the Partnership for managing the equipment (see Note 2). FSI, in
conjunction with its subsidiaries, syndicates investor programs, sells
equipment to investor programs and third parties, manages pools of
transportation equipment under agreements with the investor programs,
and is a General Partner of other Limited Partnerships.
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
1. Basis of Presentation (continued)
Accounting for Leases
The Partnership's leasing operations generally consist of operating
leases. Under the operating lease method of accounting, the leased
asset is recorded at cost and depreciated over its estimated useful
life. Rental payments are recorded as revenue over the lease term.
Lease origination costs are capitalized and amortized over the term of
the lease.
Depreciation and Amortization
Depreciation of equipment held for operating leases is computed on the
200% declining balance method, taking a full month's depreciation in
the month of acquisition, based upon estimated useful lives of 15 years
for railcars, 12, 8, 6 and 5 years for aircraft, and 12 years for all
other types of equipment. The depreciation method changes to straight
line when annual depreciation expense using the straight line method
exceeds that calculated by the 200% declining balance method.
Acquisition fees have been capitalized as part of the cost of the
equipment. Lease negotiation fees are amortized over the initial
equipment lease term. Debt issuance costs and debt placement fees are
amortized over the term of the loan for which they were paid.
Organization costs are amortized over a 60-month period. Major
expenditures which are expected to extend the useful lives or reduce
future operating expenses of equipment are capitalized.
Transportation Equipment
In March 1995, the Financial Accounting Standards Board (FASB) issued
statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" (SFAS 121). This standard
is effective for years beginning after December 15, 1995. The
Partnership adopted SFAS 121 during 1995, the effect of which was not
material as the method previously employed by the Partnership was
consistent with SFAS 121. In accordance with SFAS 121, the Partnership
reviews the carrying value of its equipment at least annually in
relation to expected future market conditions for the purpose of
assessing the recoverability of the recorded amounts. If projected
future lease revenue plus residual values are less than the carrying
value of the equipment, a loss on revaluation is recorded.
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 estimated fair value less costs to sell and is subject to a
pending contract for sale.
Investments in Unconsolidated Special Purpose Entities
The Partnership has interests in unconsolidated special purpose which
own transportation equipment. These interests are accounted using the
equity method.
The Partnership's investment in unconsolidated special purpose
entities includes acquisition and lease negotiation fees paid by the
Partnership to TEC. The Partnership's equity interest in net income of
unconsolidated special purpose entities is reflected net of management
fees paid or payable to IMI and the amortization of acquisition and
lease negotiation fees paid to TEC.
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
1. Basis of Presentation (continued)
Repairs and Maintenance
Maintenance costs are usually the obligation of the lessee. If they are
not covered by the lessee, they are charged against operations as
incurred. Estimated costs associated with marine vessel drydockings are
accrued and charged to income ratably over the period prior to such
drydocking. The reserve accounts are included in the balance sheet as
lessee deposits and reserve for repairs.
Net Income (Loss) and Distribution per Depositary Unit
The net income (loss) and distributions of the Partnership are
generally allocated 95% to the Limited Partners and 5% to the General
Partner. Gross income in each year is specially allocated to the
General Partner to the extent, if any, necessary to cause the capital
account balance of the General Partner to be zero as of the close of
such year. The Limited Partners' net income (loss) and distributions
are allocated among the Limited Partners based on the number of Units
owned by each Limited Partner and on the number of days of the year
each Limited Partner is in the Partnership. The Partnership computes
net income (loss) per Unit beginning in the first full year after
closing of the offering.
Cash distributions are recorded when paid. Cash distributions of
$1,693,000, $1,695,000, and $1,298,000 were declared on December 31,
1996, 1995, and 1994 and paid on February 15, 1997, 1996, and 1995,
respectively, to the unitholders of record as of December 31, 1996,
1995, and 1994, respectively. Cash distributions to investors in excess
of net income are considered to represent a return of capital. Cash
distributions to Limited Partners of $6,908,000, $6,124,000, and
$7,135,000 in 1996, 1995, and 1994, respectively, were deemed to be a
return of capital.
Cash and Cash Equivalents
The Partnership considers highly liquid investments that are readily
convertible to known amounts of cash with original maturities of three
months or less as cash equivalents. Lessee security deposits held by
the Partnership are considered restricted cash.
Reclassifications
Certain amounts in the 1995 and 1994 financial statements have been
reclassified to conform to the 1996 presentation.
2. General Partner and Transactions with Affiliates
FSI contributed $100 of the Partnership's initial capital. Under the
equipment management agreement, IMI receives a monthly management fee
attributable to either owned equipment or interests in equipment owned
by the Unconsolidated Special Purpose Entities (USPE) 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, (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 is subject to per diem leasing arrangements and thus is
operated by the Partnership. Partnership management fees of $0.3
million and $1.0 million were payable at December 31, 1996 and 1995,
respectively. The Partnership's proportional share of the USPE's
management fees of $8,000, and $0 were payable as of December 31, 1996
and 1995, respectively. The Partnership's proportional share of the
USPE's management fees expenses during 1996 was $155,000. An affiliate
of the
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
2. General Partner and Transactions with Affiliates (continued)
General Partner is reimbursed for administrative and data processing
services directly attributable to the Partnership, which were $0.6
million, $0.6 million and $0.4 million during 1996, 1995, and 1994,
respectively. The Partnership's proportional share of the USPE's
administrative and data processing expenses was $38,000 during 1996.
Debt placement fees are paid to the General Partner in an amount equal
to 1% of the Partnership's long-term borrowings, less any costs paid to
unaffiliated parties related to obtaining the borrowing. Transportation
Equipment Corporation (TEC), a wholly-owned subsidiary of FSI receives
a fee for arranging the acquisition of equipment and negotiating the
initial lease of the equipment. The Partnership and USPE's paid or
acrrued lease negotiation and equipment acquisition fees of $0.5
million, $0.2 million, and $0.8 million to TEC and WMS in 1996, 1995,
and 1994, respectively. WMS is a wholly-owned subsidiary of PLM
International.
The Partnership paid $0.2 million, $0.3 million and $0.5 million
in 1996, 1995, and 1994, respectively, to Transportation Equipment
Indemnity Company, Ltd. (TEI) which provides marine insurance coverage
and other insurance brokerage services. The Partnership's proportional
share of USPE's marine insurance coverage paid to TEI was $72,000
during 1996. TEI is an affiliate of the General Partner. A substantial
portion of this amount was paid to third party reinsurance underwriters
or placed in risk pools managed by TEI on behalf of affiliated
partnerships and PLM International which provide threshold coverages on
marine vessel loss of hire and hull and machinery damage. All pooling
arrangement funds are either paid out to cover applicable losses or
refunded pro rata by TEI.
The Partnership has an interest in certain equipment in
conjunction with affiliated partnerships which is included in
investment in Unconsolidated Special Purpose Entities. In 1996, this
equipment included an interest in a trust consisting of six Boeing
737-200A aircraft (16.67% owned), an interest in an entity owning a
bulk carrier marine vessel (50% owned) and an interest in a trust
consisting of two McDonnell Douglas DC-9-47 aircraft (35% owned).
The balance in due from affiliates at December 31, 1996, includes
a $0.4 million due from TEI for a settlement on an insurance claim for
one of the Partnership's marine vessel which was sold in 1995. This
settlement was received by TEI in December of 1996. The balance at
December 31, 1995, includes $0.3 million due from affiliated
investments in unconsolidated special purpose entities.
3. Equipment
The components of equipment at December 31, 1996 and 1995, are as
follows (in thousands):
Equipment held for operating leases: 1996 1995
--------------------------------
Rail equipment $ 14,867 $ 14,907
Marine containers 15,498 17,355
Marine vessels 9,719 26,980
Aircraft 42,734 51,111
Mobile offshore drilling unit -- 14,486
Trailers 6,948 6,944
--------------------------------
89,766 131,783
Less accumulated depreciation (50,784 ) (73,508 )
------------------------------
38,982 58,275
Equipment held for sale 5,524 --
--------------------------------
Net equipment $ 44,506 $ 58,275
================================
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
3. Equipment (continued)
Revenues are earned by placing the equipment under operating
leases which are billed monthly or quarterly. As of December 31, 1996,
all of the Partnership's 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 pooled equipment to sublessees, after deducting certain
direct operating expenses of the pooled equipment. Rents for other
equipment are based on fixed rates.
As of December 31, 1996, all equipment was either on lease or
operating in PLM-affiliated short-term trailer rental facilities,
except for 48 containers, an aircraft and three railcars which were
off-lease. As of December 31, 1995, all equipment was either on lease
or operating in PLM-affiliated short-term trailer rental facilities,
except for 62 containers and one commuter aircraft which were
off-lease.
One commercial aircraft is on lease to Continental Airlines Inc.
(Continental). Continental filed for protection under Chapter 11 of the
U.S. Bankruptcy Code in December 1990. Unpaid past due rent payments
totaling $1.4 million were converted into two promissory notes by the
Bankruptcy Court with terms of 42 and 48 equal monthly installments,
with interest accruing at the rate of 8.64% and 12% per annum. As of
December 31, 1996 and 1995, $30,000 and $325,000, respectively, was
outstanding on these promissory notes. Continental remains current on
all payments due under the promissory notes.
In 1995, the Partnership reduced the net book value of a commuter
aircraft $0.4 million, to its estimated fair value less costs to sell.
This aircraft was sold in the second quarter of 1995.
During 1996, the Partnership sold or disposed of 283 marine
containers, an aircraft, 2 railcars, 2 trailers and a mobile offshore
drilling unit with an aggregate net book value of $9.9 million for
proceeds of $13.1 million. During 1995, the Partnership sold or
disposed of 357 marine containers, 2 aircraft and 121 trailers with an
aggregate net book value of $5.7 million for proceeds of $6.2 million.
Periodically, PLM International Inc., (PLM) 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 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. These assets were included in assets held for sale at
December 31, 1995. During 1995, the Company realized $1.3 million in
gains on sales of railcars and aircraft purchased by the Company in
1994 and 1995 as part of a group of assets which had been allocated to
EGFs IV, V, VI, VII, Fund I, and the Company.
The Partnership owns certain equipment which is leased and
operated internationally. A limited number of the Partnership's
transactions are denominated in a foreign currency. Gains or losses
resulting from foreign currency transactions are included in the
results of operations and are not material.
All leases are being accounted for as operating leases. Future minimum
rentals receivable under noncancelable leases at December 31, 1996,
during each of the next five years are approximately $8.5 million -
1997; $6.6 million - 1998; $4.8 million - 1999; $2.8 million - 2000;
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
3. Equipment (continued)
and $1.8 million - 2001 and thereafter. Contingent rentals based upon
utilization were approximately $1.0 million, $3.9 million, and $2.2
million in 1996, 1995, and 1994, respectively.
The Partnership leases its aircraft, railcars and trailers to
lessees domiciled in eight geographic regions: Canada, United States,
Gulf of Mexico, South Asia, South America, Europe Australia, and
Mexico. Marine vessels and marine containers are leased to multiple
lessees in different regions who operate the marine vessels and marine
containers worldwide. For the year ended December 31, 1996, the
Partnership accounts for proportional interest in equipment using the
equity method. The geographic information is grouped by domicile of the
lessee as of and for the year ended December 31, 1996, 1995, and 1994
(in thousands):
Investments in
Unconsolidated Owned
Special Purpose
Entities
---------------------------------------------------------------------
1996 1996 1995 1994
---------------------------------------------------------------------
Revenues:
Various $ 1,699 $ 7,827 $ 9,077 $ 10,914
Canada 1,083 2,042 1,820 1,555
United States -- 5,307 4,819 2,239
Gulf of Mexico -- 164 259 393
South Asia -- 2,221 2,769 2,723
South America 1,110 1,110 511
Europe -- -- 621 2,273
=====================================================================
Total revenues $ 2,782 $ 18,671 $ 20,475 $ 20,608
=====================================================================
The following table sets forth identifiable net income (loss)
information by equipment type by region for the year ended December 31,
1996, 1995, and 1994 (in thousands):
Investments in
Unconsolidated Owned
Special Purpose
Entities
--------------------------------------------------------------------
1996 1996 1995 1994
--------------------------------------------------------------------
Income (loss):
Various $ (16) $ 356 $ (65) $ 521
Canada (313) 309 721 1,201
United States 832 1,617 (320 )
Gulf of Mexico -- 2,327 (967) (211 )
South Asia -- (2,938 ) 782 442
South America -- 328 218 (1,652 )
Europe -- (1,676 ) (1,152) (579 )
Australia -- 555 -- --
Mexico (2) -- -- --
--------------------------------------------------------------------
Total identifiable net income (331) 93 1,154 (598 )
Administrative and other -- (3,881 ) (4,765) (4,514 )
====================================================================
Total net income $ (331) $ (3,788) $ (3,611) $ (5,112 )
====================================================================
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
3. Equipment (continued)
The net book value of owned assets at December 31, 1996, 1995, and
1994, and the net investment in the unconsolidated special purpose
entities at December 31, 1996 and 1995, are as follows (in thousands):
Investment in Unconsolidated
Special Purpose Entities Owned
-----------------------------------------------------------------------------
1996 1995 1996 1995 1994
-----------------------------------------------------------------------------
Net book value:
Various $ 3,165 $ 3,458 $ 7,523 $ 16,364 $ 25,054
Canada 2,575 3,922 8,145 3,593 3,441
United States -- 12,168 14,613 13,894
Gulf of Mexico -- -- -- 5,835 7,001
South Asia -- -- 7,273 8,826 10,592
South America -- -- 3,873 4,581 5,392
Europe -- -- -- 4,463 8,491
Mexico 3,876 -- -- -- --
-----------------------------------------------------------------------------
Total Equipment $ 9,616 $ 7,380 $ 38,982 $ 58,275 $ 73,865
=============================================================================
There were no lessees that accounted for 10% or more of total
revenues for 1996 and 1995. Lessees accounting for 10% or more of total
revenues during 1994 was M.T. Maritime (17% in 1994).
4. 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. Under the previous
method, the Partnership's income statement reflected its proportionate
share of each individual item of revenue and expense. Under the equity
method of accounting, the Partnership's proportionate share is
presented as a single net amount, equity in net income (loss) of
unconsolidated special purpose entities. 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 beginning cash and cash
equivalents for 1996 is different from the ending cash and cash
equivalents for 1995 on statements of cash flows due to the
reclassification.
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
4. Investments in Unconsolidated Special Purpose Entities (continued)
The net investments in unconsolidated special purpose entities include
the following jointly-owned equipment (and related assets and
liabilities) (in thousands):
December December
31, 31,
1996 1995
--------------------------------
50% interest in an entity owning a Bulk Carrier $ 3,165 $ 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) 2,575 --
35% interest in two commercial aircraft on a direct finance
lease 3,876 --
--------------------------------
Net investments $ 9,616 $ 7,380
================================
The Partnership has a beneficial interest in one 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 period ended December 31, 1996.
The following summarizes the financial information for the special
purpose entities and the Company's interests therein as of and for the
year ended December 31, 1996 (in thousands):
Net Interest
Total Numbers of Partnership
-------------------------------------
Net Assets $33,250 $9,616
Revenues 10,623 2,782
Net Income (2,350 ) (331 )
5. Notes Payable
On July 1, 1990, the Partnership entered into an agreement to issue
notes totaling $33.0 million to two institutional investors. The notes
accrue interest at a rate equal to 9.75% per annum and mature July 1,
2000. Interest on the notes is payable monthly. Principal is payable in
annual installments of $8.2 million on July 1 of 1997, 1998, 1999, and
a final payment of $6.2 million on July 1, 2000. The agreement requires
the Partnership to maintain certain financial covenants related to
fixed charge coverage and limits additional borrowings.
The General Partner's estimates, based on recent transactions,
that the fair value of the $29.3 million notes is $33.6 million.
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
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
5. Notes Payable (continued)
optional prepayment to be made in order to remain in compliance with
the loan covenants. As a result, in 1996, the Partnership paid $1.6
million in principal and $0.2 million in prepayment fees to remain in
compliance with the net worth ratio contained in the note agreement.
During 1995, the Partnership was in compliance with the applicable
lender's covenants.
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 December 31,
1996, PLM Equipment Growth Fund V had borrowings of $2.5 million, PLM
Equipment Growth Fund VI had $1.3 million, PLM Equipment Growth Fund
VII had $2.0 million, AFG had $26.9 million, and TECAI had $4.1 million
in outstanding borrowings. Neither PLM Equipment Growth Fund IV nor
Fund I had any outstanding borrowings. Due to the loan covenants of the
senior debt, the Partnership cannot access this line of credit at this
time.
6. Income Taxes
The Partnership is not subject to income taxes as any income or loss is
included in the tax returns of the individual Partners. Accordingly, no
provision for income taxes has been made in the accounts of the
Partnership.
As of December 31, 1996, there were temporary differences of $7.1
million between the financial statement carrying values of certain
assets and liabilities and the federal income tax basis of such assets
and liabilities, primarily due to differences in depreciation methods
and equipment reserves.
7. Subsequent Events
In January 1997, the Partnership sold a product tanker marine vessel
with a net book value of $4.5 million for proceeds of $6.9 million.
This marine vessel was classified as equipment held for sale as
December 31, 1996.
PLM International, Inc. along with PLM Financial Services, Inc.
(FSI), PLM Investment Management, Inc. (IMI), PLM Transportation
Equipment Corporation (TEC), and PLM Securities Corp. (PLM Securities),
and collectively with PLMI, FSI, IMI, TEC and PLM Securities, (the "PLM
Entities"), were named as defendants in a class action lawsuit filed in
the Circuit Court of Mobile County, Mobile, Alabama, Case No.
CV-97-251. The PLM Entities received service of the complaint on
February 10, 1997, and pursuant to an extension of time granted by
plaintiffs
PLM EQUIPMENT GROWTH FUND IV
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
7. Subsequent Events (continued)
attorneys, have sixty days to respond to the complaint. PLM
International, Inc. is currently reviewing the substance of the
allegations with its counsel, and believes the allegations to be
completely without merit and intends to defend this matter vigorously.
The plaintiffs, who filed the compliant on their own and on behalf
of all class members similarly situated, are six individuals who
allegedly invested in certain California limited partnerships (the
Growth Funds) sponsored by PLM Securities, for which FSI acts as the
general partner, including PLM Equipment Growth Fund IV, PLM Equipment
Growth Fund V, PLM Equipment Growth Fund VI, and PLM Equipment Growth
and Income Fund VII. The complaint purports 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 for breach of third party beneficiary contracts against and /in
violation of the National Association of Securities Dealers rules of
fair practice by PLM Securities alone.
Plaintiffs allege that each defendant owed plaintiffs and the
class certain duties due to their status as fiduciaries, financial
advisors, agents, general partner, and control persons. Based on these
duties, plaintiffs assert liability against the PLM Entities 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 limited
partnership units back to the defendants.
PLM EQUIPMENT GROWTH FUND IV
INDEX OF EXHIBITS
Exhibit Page
4. Limited Partnership Agreement of Registrant *
10.1 Management Agreement between Registrant and
PLM Investment Management, Inc. *
10.2 Note Agreement, dated as of July 1, 1990,
regarding $33,000,000 9.75% Senior Notes due
July 1, 2000.
10.3 Note Agreement, dated as of August 21, 1992, regarding
$6,000,000 variable rate line of credit due August 19, 1994. *
10.4 Second Amended and Restated Warehousing Credit Agreement,
dated as of May 31, 1996, with First Union National Bank
of North Carolina. *
10.4 Amendment No. 1 to Second Amended and Restated
Warehousing Credit Agreement, dated as of November 5,
1996 with First Union National Bank of North Carolina. *
24. Powers of Attorney. 43-44
* Incorporated by reference. See page 24 of this report.